Debt management is quite overwhelming especially when it’s getting harder for you to manage the repayments. A reasonable and affordable payment plan can provide you the relief you are looking for. Some people think of debt settlement as a one time pay off but on the other hand, if you negotiate a monthly payment plan, it might be more affordable and manageable for you. It’s a more sustainable option only if you know how to navigate the process.
What Is A Debt Settlement Plan?
A debt settlement plan is an agreement between a debtor and a creditor where the creditor agrees on reducing the amount of debt. In return the debtor either has to pay a lump sum of the total debt or has to follow a structured payment plan over time. These plans only work when the debtor is far behind his payments and is unable to meet his debt obligations in full.
Creditors aren’t obliged to accept a settlement offer and they only do this when the debtor really is facing a serious financial hardship. Your plan will only work if you are going through a medical emergency, loss of job or a divorce etc. These situations make you qualify for a debt settlement where the creditor can clearly see that you won’t be able to pay off the complete amount of debt any time soon.
Why Are Monthly Payments More Feasible?
Lump sum settlements are more common in a debt settlement but there are creditors who understand that the debtor won’t be able to pay a large amount at once which is why they agree to a structured payment plan instead.
Here’s what monthly payments offer;
More Affordable: A monthly payment means it’s easier for you to manage your debt and pay it off. In a nutshell, it’s easier budgeting and less mental strain.
Offers Flexibility: With a proper monthly payment plan, you can focus on your other financial obligations as well instead of worrying about your debt only.
More Feasibility: You won’t have to worry about liquidating your assets or taking up another huge loan to pay off your current loan.
Step By Step Guide On How To Negotiate Monthly Payments In A Debt Settlement Plan
As said earlier, debt settlement isn’t as easy as it seems. Especially if you have a difficult creditor who won’t easily understand your situation, things can get really overwhelming. Usually, it’s recommended to use third party debt settlement services in such cases. For example, you can opt for Mountains Debt Relief, a highly professional debt relief company that can use a more professional approach to handle your settlement.
If you want to work on a monthly payment debt settlement plan with your creditor then here are the steps you should follow;
1- Evaluate Your Financial Situation
Before you reach out to your creditor, you must have a clear picture of where you stand financially. For this you have to list down all your monthly expenses, your income and your debts. Once done, you then have to decide on an amount that you can realistically afford to pay every month. Make sure that the amount you are dedicating to your debt settlement plan doesn’t compromise your essential needs or else you’ll end up taking up another loan which can further complicate the process.
2-Understand Your Debt
Next, you should study your debt in detail before making any move. You should know about the total amount you owe, the kind of debt you are dealing with (credit card, medical bills or personal loan). Further, you should know the current standing of your debt whether it’s in collections or with the creditor. Also, determine how long the debt has been delinquent. Creditors are more likely to accept a monthly payment settlement offer when your debt is old or already in the collections.
3-Approach Your Creditor
Use a professional approach to talk to your creditor and don’t let your emotions take the best of you. Explain to your creditor about your current financial hardship, show proof and express your willingness to settle the debt. Once done, you should then put up a payment plan that’s easily affordable for you based on your budget and expenses.
4-Make A Realistic Offer
In a debt settlement plan, creditors usually reject the initial offer which is why you should always start low. Offer 30% to 50% of the total debt in installments over 6 to 24 months. Use your financial documents to justify your offer. If the creditor doesn’t agree on the percentage, you can increase it a bit and try to find a middle ground that benefits both you and your creditor. In simpler words, even if you are facing financial hardship, you should understand that it’s your creditors hard-earned money too and he has all the rights to recover the loan from you. Make an offer that makes sense to the creditor too!
5-Get Everything In Writing
A verbal or informal agreement doesn’t hold any value. Especially when it comes to a debt settlement plan, you should always get every detail in writing to avoid any future legal issues. From the settlement terms to the payment plan and the timeline decided, ask your creditor to provide all the terms of the agreement in a document form.
6-Stick To Your Agreement
Honoring the agreement is of utmost importance and it’s crucial for your creditworthiness too. If your creditor has agreed on a payment plan then you should make the payments on time every month as per the contract. Missing or neglecting your payments won’t just affect your credit in fact, it might even anger your creditor and he might take legal action against you. To avoid such circumstances, you should always follow the agreement and become debt free as quickly as you can.
Common Mistakes You Should Avoid
For a debt settlement plan to go successful, you should avoid making these mistakes at all costs;
Not Doing The Math: You shouldn’t ever make an offer to your creditor that you can’t really sustain. For this, you first need to make a proper budget and consider your expenses along with your income. Put that offer on the table that you can really afford.
Agreeing To Unfair Terms: You don’t want to anger your creditor or ruin the settlement plan but that doesn’t mean that you should accept unfair terms like a short timeline or higher interest rates. Negotiate the terms of the agreement with your creditor and only agree to what seems fair to you.
Ignoring The Tax Implications: Most people don’t know that if your creditor forgives anything above $600, that amount is considered taxable by the IRS. Before signing a settlement contract, you should talk to a tax lawyer and get all the information about the tax obligations that come along.
No Confirmed Settlement: You must not believe any verbal or informal promises as they aren’t legally binding. Always get your debt settlement plan terms in writing to avoid any legal issues.
Final Thoughts
If you negotiate a proper monthly payment debt settlement plan with your creditor, it can serve you as a new lifeline especially when you are already going through a financial hardship. You need to come up with a manageable solution that benefits you and your creditor and for this, you require proper and clear communication, proper preparation and a realistic offer that you can really afford. You must stay proactive when your goal is to manage your financial recovery. Also, ensure to document the agreement for future financial security.
FAQs
Q1. Can I Negotiate My Monthly Payments Myself?
Yes, you can easily negotiate your monthly payments with your creditor yourself. In fact, creditors prefer direct communication with the debtor too but if you are uncomfortable or if you are stuck with multiple debts then it’s best to use a debt settlement company here. A reputable company or a counseling agency can make the process a lot smoother and seamless for you. You just have to avoid the ones that charge huge upfront fees.
Q2. How Much Should I Offer In A Monthly Payment Plan?
Your creditor will most likely reject your initial offer which is why you should always start low. Start with 20% to 40% and if your creditor rejects it then you can increase it and go up to 50%. Most creditors do agree on 50% over a period of 6 months to 24 months. Just make sure to leave some room for negotiation.
Q3. What Happens If I Miss A Payment In My Settlement Plan?
Missing a payment can put your agreement in danger and your creditor might send the debt into collections. If this happens, it can wreak havoc on your mental and financial health which is why if you are at a risk of missing a payment, just talk to your creditor about it and try to renegotiate.