Debt settlement can be a good option for those who are drowning in debt. It can bring your payments down to affordable levels if your back is against the wall and your only other way out is bankruptcy. But if you choose to go this route, there are a few things you should know before you begin negotiating with your creditors.
Please be advised that debt settlement should be a last resort; you should only use it when your only other alternative is bankruptcy. Credit card debt settlement can frequently reduce your debt by 30-70%, but it is not a get out of jail free card; you will likely have to pay income tax on any forgiven debt, and your credit score will also be adversely affected (although a settled debt is much better than a bankruptcy).
If your account is currently being handled by a collection agency, do not try to negotiate your debt with them. You should only negotiate with the original creditor.
In that case, contact the credit card company and advise them that you have fallen on hard times and may be forced to file for bankruptcy if you cant find a way to reduce the amounts you owe. This should cause them to sit up and take notice, because chances are they would rather settle with you and get some of their money back, rather than let you file bankruptcy, which would probably leave them with nothing.
Creditors usually will not agree to settle your account unless it is seriously delinquent. Some creditors won’t consider settlement until an account is almost 180 days late, at which point they would normally “write off” the debt and sell it to a debt buying company for just a tiny percentage of the amount originally owed. Obviously, it would be better for the creditors to settle with you because they will never recoup nearly as much of their money from a debt buyer than they will from a settlement.
Once you start negotiating, make sure you send all correspondence to your creditor through certified mail with return receipt, and always keep copies of everything you send and receive. Also, document any telephone conversations you may have with the creditor.
Be patient and expect the process to take time; it can take anywhere from 3 to 9 months to reach an agreement on a debt settlement.
Once an agreement is finally reached, don’t make payment without doing the following things first: Request a written copy of the settlement agreement from the creditor. Also, ask the creditor to provide you with a written statement that they will never sell your forgiven debt to a junk debt buyer. This is crucial, because you don’t want the remainder of the debt to come back to haunt you later.
If you would prefer not to negotiate with your creditors yourself, you could hire a debt settlement service. Just be sure to investigate potential debt settlement companies thoroughly before hiring them; seek one that has a satisfactory record with the Better Business Bureau.
Jessica Acosta is dedicated to providing you with accurate, objective information about debt settlement, credit repair, and similar issues. If you found this article helpful and wish to read more from Jessica, please visit her at Credit Repair and Debt Solutions.
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