Debt Settlement Basics

If you feel like you are drowning in debt and have no way to pay off your bills without winning the lottery, it might be time for you to look at debt settlement. Whereas bankruptcy stays on your credit record for seven years and debt consolidation loans can be very expensive, settling your debts individually with each of your creditors can end up saving you money and get you back on track to taking back control of your financial life.

How do you begin the debt settlement process?

There are two main ways you can begin the process of debt settlement: securing a debt settlement company or negotiating with your creditors yourself. Debt settlement companies have more experience and lawyers who know the ins and outs of negotiating debt settlement. Still, in reality, there is nothing that the company can do that you can’t do for yourself.

The first step is to give the creditor motivation to enter into negotiations to settle the debt. To give the creditor a reason to negotiate, you must take steps to convince them that you cannot pay the total amount owed.

It might seem counterintuitive to begin negotiation with silence, but the companies need to believe that they will never get their money, so when the creditors call, don’t communicate. This strategy will eventually encourage the creditor to investigate selling your debt to a collection agency.

Because the collection agency purchases the debt at a fraction of its value, the company is motivated to negotiate with you to get the greatest possible return on the amount owed.

What can I expect from the debt settlement process?

Once the collection company or creditor understands that the only way to get a substantial amount of the debt settled is to negotiate, you have the power in the situation.

The company is highly motivated to get as large a settlement as possible but will settle for less if they believe they will get paid.

This allows you to tell the company how much money they can expect to receive from you. Typical payments are 20-75% of the initial debt.

The company might try to get you to agree to a payment plan. However, that can result in interest accruing additional debt, so a lump sum payment is preferable. Waiting until you have saved the amount you wish to pay is a good strategy.

If you are dealing with a collection company rather than the original creditor, get them to send a debt validation letter confirming whom they purchased the debt from and the total original amount.

Be sure that you get detailed notes of every conversation, including the names of those you spoke with and any amounts discussed. Do issue any payments to the collection agency or creditor unless you are certain this is a viable settlement offer.

Remember that you will owe taxes on any amount that the creditors forgive. They are under no obligation to negotiate, so weigh the decisions carefully and make sure you understand the implications of negotiation.

If you would like more information on debt settlement in Denver, Colorado Springs, Fort Collins, Boulder, Loveland or any nearby area, call our legal team today at (303) 623-4357 to schedule an appointment.