Guest Post Author Bio: This guest post was written by Frank Collins, a professional writer specialized in topics related to personal finance, debt relief, credit repair and more. If you are willing to settle your debts on your own, pass through the debt settlement blog for more tips and advice on the topic.
Debt settlement companies have a reputation of scamming consumers out of their money and doing little or nothing to pay off their debts. Not all debt settlement companies are bad, but that doesn’t mean you need to pay thousands of dollars to settle your debts when you can do it on your own for much less. You can negotiate your own settlements without any special training, certification, or relationship with a creditor.
How Settlement Works
When your creditors accept a settlement payment, they apply the settlement to your balance and cancel the rest. So, if you settle a $10,000 account for $6,000, the creditor cancels the remaining $4,000.
A few steps are necessary to negotiate a successful settlement. The creditor must have experienced a loss on your account or believe your account is at risk for becoming a loss. Accounts are typically at risk of loss once they are 90 days past due. Any account that’s been charged-off or sent to a collection agency is already a loss.
If your account is 90 days past due but hasn’t been charged off yet, the creditor has to believe that there’s no chance you can resume making regular monthly payments on your debt before they’ll agree to a settlement. You can build a case for your financial instability by letting your creditor know you’re having difficulty making payments.
Delinquency Requirement for Settlements
Creditors don’t usually accept settlements on accounts that are current or less than 90 days past due, these accounts still have a potential for making a profit. Instead, you’ll have to let your accounts become delinquent to negotiate a settlement. Yes, that goes against everything you’ve ever read about financial responsibility, but it’s a necessary step in settlements.
If you’re considering settlement, it’s probably because you can’t afford to pay your debt. You’re probably struggling to make ends meet every month and other solutions like credit counseling and debt consolidation are not options. Debt settlement is probably your last option before bankruptcy. You’ll have to remember these things when you stop paying your credit cards and start dealing with creditors and collectors.
Saving Up and Making Your Settlement Payment
Instead of sending monthly payments to your creditors each month, you’ll put that money in a separate checking account that’s designated for settlements. Then, when you’ve accumulated enough money – about 40% to 60% of the outstanding balance due – you’ll make a settlement offer to your creditors. Let your creditor know that you can’t resume regular payments, but that you might be able to come up with enough money to settle the account if the creditor will accept your offer. If the creditor asks why you can’t make payments give them a very brief explanation – you lost your job, you have high medical expenses, etc.
Once a creditor agrees to a settlement, make sure you get the settlement agreement in writing before you send payment. The agreement should be on company letterhead and include the settlement amount, date of the settlement, and the date the settlement needs to be paid. With the settlement letter in hand, you can make the settlement payment in whichever way the creditor will accept.
Related posts:
