Talking to your lender about debt settlement directly seems like the better option instead of hiring a debt relief company. Well, it sure is easy but only if you have your plan sorted and can convince the lender on an agreement without pushing too much. Now, when you hire a debt settlement company, you’ll have to pay a fee for it but that’s only because these people are professionals and have more experience in settling debts. There’s no one answer that fits all and it totally depends on your financial situation and your creditor.
What Is Debt Settlement: Can You Do It Yourself?
Debt settlement in simple words is an agreement where your creditor agrees on reducing your debt amount. You just pay off the agreed figure to the lender and the rest of the amount is just forgiven.
Now, in such a situation, you’ve got two options. First is that you hire a debt relief company to make a solid proposal and convince your lender to settle your debt. In exchange you have to pay the company a decided fee once the settlement goes through.
The second option is that you talk to your creditor directly, tell him about your financial challenges and the fact that you don’t have enough funds and resources to pay off the complete debt amount. So you just ask them to forgive the rest of the loan and pay them a figure as per your agreement. This is what DIY debt settlement is and it’s the better option when you are really desperate to save every single penny.
Steps To A Successful DIY Debt Settlement
As per statistics, debt settlement completion rates range between 35% to 60% and an average of 50%. Whether you hire help or talk to your creditor directly, both options can be very overwhelming because you don’t have any guarantee if your lender will agree to your proposal. In the worst case scenario, you might as well end up in a lawsuit so you have to be careful about the process.
Here are some useful steps you need to follow for a successful debt settlement;
1-Evaluating Your Financial Situation
The very first thing you need to do is to have an outline of the plan you need to follow to tackle your financial situation. Jot down everything about the number of people who you owe money, the total amount, the monthly repayments and interests along with your current income and expenses.
Once you have it all sorted, you then need to figure out the amount you have to negotiate with. Sometimes it’s better to just stick with your monthly repayments while you build a lump sum for debt settlement. Moreover, if you want your creditor to take your deal seriously then you at least need a lump sum of 50% of the loan that you owe.
2-Contacting And Negotiating With The Creditors
The next step of course is to study your creditor first before approaching. Check out all the policies they’ve set for your loan. Remember that your creditor is under no obligation to agree on your debt settlement plan. You need to make him believe that you really can’t pay the entire amount of the loan, this way you’ll have a great chance in negotiating and winning the agreement.
Know the amount that you really can afford to pay back before contacting. Sometimes anxious people get just 10% knocked off their principal and start celebrating only to find out that they still can’t afford to pay back. Come up with a solid proposal where you mention authentic reasons stating why you can’t afford the repayments. When the creditor sees missed payment stacking up, he may consider the settlement because partial payment is better than no payment at all.
3-Setting Up A Settlement Agreement
If your creditor has finally agreed on settling your debt then the next step is to get it all in writing. Documenting the entire agreement is of utmost importance as it can save you from any legal trouble in the future. You need to read everything carefully including the terms and conditions, the deadlines, the penalties and of course the amount that’s due.
Remember that patience will always pay off so don’t rush the process because collection agencies are always good at intimidating. They’ll put you in a position and pressurize you on settling for less but you have to play this game at a slow pace with patience.
4-Making Payments And Finalizing The Settlement
After all the documentation, check if you have to pay the lump sum at once or have to follow a payment plan. Stick to the agreement and make the due payments on time to avoid any further trouble. If you ignore a debt settlement agreement and don’t pay the dues, you can end up in more trouble and more financial challenges than you were before. You are supposed to honour your agreement and be debt-free as soon as you can. Once you’ve made the payments, document them all, save the receipts and then you’ll be done with your creditor.
Pros And Cons Of DIY Debt Settlement
DIY debt settlement comes with its own pros and cons and that’s what we are going to discuss now so that you know every minor detail before stepping into this process.
| Pros | Cons |
| You will be able to save yourself money as with debt relief companies, you have to pay a fee. | The creditor can sue you and make you apply for bankruptcy if you don’t plan out the settlement proposal well. |
| You know your creditor better and this just increases the chances of a successful debt settlement. A third party won’t be able to design a plan that satisfies your creditor but you would know how to do that. | There’s no guarantee whether the creditor will agree on forgiving the loan amount. In fact, if the deal doesn’t go well, the creditor might take harsh steps and force you to pay the complete loan amount. |
| There’s more clarity in the process when you are dealing with your lender directly. A debt settlement company might complicate the communication for you and there won’t be much transparency but if you deal with the creditor directly, you’ll know all the minor details. | The process can be very overwhelming and stressful for you until your creditor agrees upon making the settlement. |
Alternate Options If DIY Isn’t Right For You
If you think that talking to your creditor and negotiating on your own isn’t your cup of tea then here are some alternatives you need to know about. Starting with;
Hiring A Third Party
Yes, you will have to pay the fee to another company for debt settlement but at least it will save you from all the trouble, hassle and stress. These companies use a more professional approach when dealing with such situations and they are more experienced so their success rates are higher. You just need to find the right company that knows how to satisfy their customers and meet their needs.
Debt Consolidation
Who knows your creditor better than yourself? If you think that this whole debt settlement plan won’t work out for you then opting for debt consolidation would be the wiser decision. In debt consolidation, you apply for another bigger loan to pay off the rest of your creditors. The benefit here is that you’ll only have to deal with a single loan, no multiple collection calls and a single monthly repayment.
Talk To A Credit Counselor Or A Financial Advisor
If you are under too much pressure and don’t really know how to tackle your financial situation then your bank or the credit union can direct you with a financial advisor. These professionals have years of experience and they will try to look behind the curtain to find out where and what you lack in your financial plannings. With proper counseling you can sort out your finances and do something about your debt settlement plan too.
FAQs
Q1. Is it better to settle debt on your own?
If it’s possible, you should pay the entire loan amount back but if you can’t afford to do that then yes debt settlement on your own is the right decision. A settled debt will have a lesser negative impact on your credit score than not paying it at all.
Q2. What happens after debt settlement?
After debt settlement, you will be done with your creditor but it will stay on your credit history for at least 7 years and this can make it hard for you to get any new loan or credit in the future.
Q3. What percentage should I offer to convince the creditor for debt settlement?
If you really want the creditor to agree on forgiving a percentage of your debt then always start with 25% to 50% of the entire debt as your lump sum payment. This will definitely make your lender think about your offer and he would prefer getting partially paid instead of no payment at all.
Mountains Debt Relief will provide you with the best debt relief assistance to sort out your financial situation. Contact now to experience utmost customer satisfaction!