Debt Settlement Negotiations: A Complete Guide

Are you having trouble eliminating your debt? Are you making late payments, or have you missed out on several payments? If so, you need to learn about debt settlement negotiations.

Debt can quickly add up if you don’t get rid of it early. In fact, you can reach a point where it becomes almost impossible to pay off your debt. As a result, many people declare bankruptcy or sell their assets to pay off their debts. These circumstances not only impact your financial life but also impact your family and professional life.

If you are looking for a solution, it’s better to hire an expert who can help you get through this problem. They will recommend debt settlement negotiations and help you go through the process.

Basics of Debt Settlement Negotiations

Simply put, it is an agreement between a borrower and a lender for a large payment towards current debt in exchange for forgiveness for the remaining debt. For instance, if you owe $10,000 on your credit card, request your creditor to settle the debt in $5,000. Since you will be paying this amount at a time, your credit card company will agree to erase or forgive your remaining $5,000 debt.

Wondering why your lender is forfeiting such a significant amount of money? It typically happens when the lender is either out of cash or is worried that you will not pay the entire balance due to bankruptcy or other issues. In both ways, your lender will try to protect themselves, which is important to remember when you start negotiating with the lender.

Note that credit cards are unsecured loans. Therefore, there is no collateral the debt collector or creditor can seize to get funds equal to your loan.

Negotiating with your credit card issuer may sound too good to be true, but it’s certainly not. So, if you have missed several payments and are at risk of filing for bankruptcy, it’s the best option for you. Your lender will also try to get what they can. This way, they will get back at least some percentage of what you owe them.

Pros of Debt Settlement

If you contact the right debt settlement company or follow the process yourself, you can reduce your debt dramatically. Most importantly, by settling your debt with your credit card issuers, you can save great money as well as the stress of significant debt on you.

This is also an ideal option for you if you don’t want to declare bankruptcy. Are you tired of getting countless calls from debt collectors or your credit card company? Opting for debt settlement will save you from going through regular stress. Most importantly, you can prevent your score from dropping due to late payments.

How to carry out Debt Settlement Negotiations?

A settlement agreement not only helps you reduce debt but also lowers the risk of bankruptcy and lowers your financial burden. In fact, you can also prevent your credit score from dropping further, as you don’t have to declare bankruptcy.

The following are some things you need to consider before opting for debt settlement.

• Do I need a debt settlement company or should if negotiate myself?
• How much debt I can pay?
• Can I stop making payments and let my credit score drop so that I can save up for a lump sum?

Once you get answers to these questions, here are the steps that you need to go through for debt settlement negotiation.

Understand Your Debt

Planning to settle your debts? Before contacting your credit loan issuer, you need to analyze your debt condition. Do your research and try to understand who the creditors are and how much debt you owe them.

Many people begin the process with the intention that they will figure it out later. This can cause a problem for you and prevent you from making an appropriate offer. So, get organized, analyze your situation, and prepare yourself before you pick up the phone.

Hire an Expert

You can also hire a local debt settlement expert. In this case, you can either ask them to perform the entire task on your behalf or ask for guidance to settle your debt.

Hire an experienced and skilled expert who can prevent you from making mistakes in the settlement process. If you are not good at financing and understanding the numbers, they can help you determine your situation. Also, they will explain the pros and cons of settlements. In fact, if it’s possible, they can give an alternative to debt settlement negotiations so that you can choose the best option for you.

These professionals have extensive knowledge of the most popular creditors, and even if they don’t, they can research your lender to help you figure out how to negotiate with them. So, if there is any risk that you will fail debt settlement negotiations, you need to hire an expert.

Establish Your Terms

You need to ask yourself how much you can pay each lender to get rid of your credit card debt. Also, you need to create a plan that allows you to easily make a large lump-sum payment.

Make sure to offer less than the money you can afford to pay. This allows you to negotiate later. Your hired expert will also recommend that you avoid making promises to your credit card lender that you can’t keep. Never get ready to pay the money that you can’t afford, as this can tighten your financial condition and may not leave any money to pay for your regular expenses, such as food or rent. Many people make this mistake and end up defaulting on a settlement, which leads to more problems.

Based on how much you owe, you may require months or years to make a lump-sum payment. Don’t forget if you are planning to pay monthly payments during this time; you will be stacking interest charges and late penalties on top of your current debt. Although your debt settlement expert may encourage you to stop paying debts, if you will negotiate yourself, it’s better to choose to make minimum monthly payments to prevent additional charges.

In many cases, if your lender won’t accept your offer, they might accept a few lump-sum payments or a payment plan. So, make a payment plan with your hired professionals as an alternative if things don’t go in your desired direction.

When coming up with a plan, remember to ask your credit card issuer to report your debt to credit bureaus- TransUnion, Experian, and Equifax, as “paid in full” instead of “paid as agreed” or “settled.” This way, you can improve your credit score.

Contact Your Creditor

This is the most difficult step of the entire debt settlement negotiation process. If you are behind on payments, your lender might be willing to hear out your offer. In theory, if a person has missed several payments, they might eventually stop paying altogether, and creditors would rather take some portion of the debt than none at all.

If a debt collector or your lender calls you, pick up the call and start negotiating with them. But make sure that you are in a quiet place where is no distraction as you need to speak professionally and seriously. As you begin talking to them, they will ask you to make the payment in full. Be ready to make a counter-offer for a lesser amount. If they don’t accept the offer and conclude the call, wait for the next call. Keep in mind that the debt settlement negotiation process can take several calls to finally reach an agreement.

On the other hand, if your offer gets approved, your credit card issuer might ask for your bank account information. Don’t share any information with them and say that you’ll send a detailed letter of agreement and pay the settlement money on the agreed-upon date.

Review a Written Settlement Agreement

Well, you might be happy after getting a great deal on the phone. However, your lender will also have the opportunity to refuse the offer at any time. Therefore, you need an official offer in writing. This proposal should include the debt collector’s name, your name, and account number. Make sure it has all the terms of your debt settlements, such as whether you’ll make payments over time or lump sum, the amount decided for settlements and the other payment due dates.

The proposal should clearly state that your payment will satisfy your obligation. It should say that your account will be paid in full, will be settled, accepted a settlement in full, or something of the sort. Keep a copy of the payment confirmation or letter. Show these documents to the collection company if they reach you in the future. Give your creditor some days to print them and send you.

Make Your Payment

Once you get the written settlement document, you need to follow the terms and make the payment on the designated date. It’s better to decide how you will make the payment some days before your due date to avoid any problems. Experts advise mailing the payment by money order or check. You can also plan to send the money directly from your bank account.

Avoid providing bank account information or sending postcard checks. Although it’s illegal for lenders or debt collectors to take money out of your bank account without your permission, there’s a great risk that they will try to get more than the agreed amount if they get your account details.

Contact Credit Bureaus

Once you pay your debt according to the debt settlement negotiations, you need to request a free copy of your credit report from all three credit bureaus. Since you can get a report once every year, there will be no consequences for it.

Wondering why you need to get a report? This will help you make sure that your credit card issuer has reported to credit bureaus as you agreed. If you find an error on your report, send a letter to your credit bureau. Tell them about the problem, and ask them to fix it. If you are still not able to fix it, hire a settlement expert to fix the issue.

Is Debt Settlement Right for You?

For people who are making their minimum monthly payments on time on all their credit cards and have a credit score within the good to excellent range, debt consolidation is a good option. Furthermore, to eliminate your debt, you can use a credit card, home equity loan, or personal loan with a 0% APR on balance transfers.

If you believe that sticking to a budget or learning some financial skills are the best options to eliminate your debt, opt for credit counseling services. Contacting a credit counselor can help you create a debt management plan. This type of debt consolidation plan is made based on your financial condition. Your credit counselor will calculate how much you can afford. They also estimate how much you can negotiate with your creditor for lower interest rates, monthly payments, or waived penalties and fees. Once the plan is finalized, you need to make monthly payments to the credit counseling agency, which will pay your lender based on the terms of the agreement.

Bottom Line

Debt settlement negotiations can help you avoid going bankrupt and give you peace of mind. Though the settlement process may look simple, it might be hard for a person with no background in finances to handle the process. Therefore, it’s better to hire someone who can support you throughout the process and offer you the guidance you are looking for.

If you want to learn more about debt settlement and other aspects of finances, you can check the information on Credit Follows. Also, if your credit takes a hit due to unstable financial conditions, Credit Follows can help you improve your score.