Debt settlement is the process of negotiation with your creditor wherein you offer a limited payment towards an existing balance, in return of forgiving the remaining debt. However, debt settlement should be an option for you only if you are more than 90 days behind your payment and can’t afford to pay the minimum monthly payments.
This type of debt relief involves a lot of haggling with your creditors. There are professional debt negotiators who can guide you through the debt settlement process. However, this task can be done on your own. You can save a lot of money by do it yourself debt settlement. You will, also, have control on everything and you don’t have to explain your financial situation to a debt settlement company. Below are few vital steps that you must remember while DIY (do it yourself) debt settlement:
1. Organize your debts
You must make a list of all your debts and the creditors you owe money to. It’s crucial to note down how much behind you are on payments. Try to track all your missed payments also, if possible. You can find it on your credit report easily.
2. Manage your money
Mark all your earnings and basic expenses. Note down the extra amount you are left with after all your expenditures. Set aside that money each month. Make a new settlement fund at the same time and save that extra money in that fund. You need to save that money for few months so that you’ve some money saved in your account to negotiate with the creditors.
3. Negotiate with creditors
After few months of nonpayment, the creditors are tend to contact you. You have no option than to entertain the creditors, but be consistent in your stand. You’ll have to explain them that you’ve no funds. Be honest, clear and convincing while negotiating with the creditors. You must keep in mind that they’re not obligated to negotiate with you, so shouting or being rude or even crying is not going to help. You can remind the creditor in a very polite way that if they do not wish to negotiate, they might end up getting nothing when they sue you because you are in real financial trouble and can also file bankruptcy. It is advised to use the word bankruptcy more than once, so that they are convinced to settle the account with you. It’s important to explain the creditor as why settlement is the best option.
4. Keep your evidences safe
All formal interactions with the creditors, verbal or written, should be recorded after taking prior permission and checking the rules of the state. You can note down the date and other details of the phone call. Keep a copy of all letters you receive or send. Once the creditors agrees and negotiates your debt to a certain amount, ask them to send it in writing. It’s important to get it all written as they might not agree to it later, after all the effort and time devoted to it. You should pay once you’ve a written agreement with your creditor in hand. Sign and put the date in the agreement just as you would do in a contract. Always use a certified mail.
5. Pay on time
It’s very important to pay your settlement amount on time. Don’t make your creditors angry after so much negotiation. Make sure you don’t give them your personal information, like bank account details, routing numbers, debit card numbers, etc. You should pay only by using money order or cheque and send it by a certified mail.
The debt settlement process is very stressful. Your phone might ring off the hook and the conversation might be intimidating. The key solution to a successful DIY debt settlement is firmness along with politeness. Although debt settlement does have an effect on your credit report, it’s better than filing for bankruptcy.