As per a recent survey conducted to study how people deal with debt, 30% used debt settlement in order to resolve their debt, 40% filed for bankruptcy and the rest opted for debt management. The survey highlighted that people now use debt settlement because it’s the easier way out. They just have to negotiate debt relief with the creditor to forgive a partial percentage of their debt without involving any attorneys or legal filings.
Why Negotiation Matters?
When you are dealing with overwhelming debt and can’t afford another harassing call from your creditor, that’s when you need to take action. When you are stuck in such a situation, you can’t just file for bankruptcy, in fact, it should be one of your last resorts. The wiser solution is to opt for a debt settlement where you just convince your creditor and negotiate on making the partial payment.
For the plan to work out, you need to master the art of negotiation as this is the only factor that can make or break your deal. With the right negotiation, you and your creditor can work on a mutually beneficial agreement like partial debt forgiveness or a structured payment plan that suits your financial situation. This way you will be able to resolve the dispute yourself quicker than litigation and it will cut down your legal costs too.
Can You Negotiate Debt Settlement Yourself?
Yes, you can negotiate lower payments with your creditor on your own but it’s not as easy and simple as it sounds. It’s not like you just pick up your phone and ask your creditor to forgive half of the loan directly without any plan. In fact, taking this route can end you into hot waters and you might even get sued.
For a successful DIY debt settlement, you need to have a proper plan and proposal. There are multiple factors you need to assess first, including the amount you owe, the amount you can manage to pay, your financial hardship and how you’ll explain it to your creditor. Even if you are on great terms with your lender, he would not be willing to just write off your debt without any authentic reason.
However, if negotiation really isn’t your cup of tea and you aren’t sure if your creditor will agree to your terms then hiring a debt relief company would be the wiser option. A third party debt settlement company can use their professional expertise to resolve your debt with your creditor without causing any trouble for you.
How To Contact Creditors And What To Say?
If you’ve made up your mind to resolve your debt and negotiate with your creditor then here are a few things you should consider;
- You need to stop making payments at least 5 to 6 months before the negotiation. All the missed payments will give your creditor an impression that you really can’t afford the repayments and instead of losing all his money, he would prefer getting the half of it at least.
- Contact your creditor and inform them about your financial hardship and express your intention for a settlement. You need to give a clear overview of the challenges you are facing and make it look really serious to convince your lender.
- Be ready for back and forth negotiations. Your creditor will first review your initial offer so be prepared to agree on a middle ground.
- Document the entire agreement and specify all the payment terms along with the settlement amount.
- Know your figures! Prepare your debt settlement fund and make sure that you have the amount ready to pay your creditor on spot if he agrees on resolving your debt. Stick to your payment plan and honor the agreement to avoid any unwanted consequences.
| Pros Of DIY Debt Settlement | Cons Of DIY Debt Settlement |
| You won’t have to pay any fees to a debt settlement company | Less favourable settlement |
| You are in complete control of the process | You are entirely responsible for the process |
| Faster repayment process | You need to be patient and use your full potential when negotiating with the creditor. |
Negotiation Strategies For Lower Settlements
It goes without saying that negotiating with your creditor for a lower settlement can be very challenging and intimidating. You need to have your strategy sorted out to be successful. Here are some negotiation strategies that can work in your favour;
1-Determine If Negotiation Is Just The Right Option For You
In order to determine how to settle debt with creditors, you first need to calculate everything including the amount you owe and the realistic time period you’d need to pay off your debt without any settlement. Given your financial obligations, if timely repayments seem unrealistic then yes negotiating with the creditor is definitely the right option.
Don’t expect the negotiation to go through overnight. It takes days and sometimes months to negotiate with lenders and resolve your debt. A lender will be more willing to negotiate if you already are months behind your repayments. This way they reach a settlement quicker just out of concern that they might end up getting nothing.
2-Setting Up Your Terms
If you’ve made the decision to settle the debt on your own then there’s another assessment that you need to make. You need to figure out the amount you can afford to pay on the debt. It should be at least 50% or above if you want your creditor to agree on the settlement.
Moreover, you need to prepare that amount before even beginning with the negotiation because not being able to meet the terms after your creditor agrees on the settlement can scuttle the deal and you can end up with an even bigger debt. Start your negotiation by offering a 30% lump sum amount, chances are that the lender will reject this offer because after all, it’s a negotiation. If he agrees on at least 50%, take the offer and make the payment.
3- Tell The Truth And Stay Consistent With it
You need to explain your reasons for falling short on payments in detail. When you miss your repayments, it’s obvious that there’s some sort of financial hardship behind it. It can be anything like a loss of job, separation, divorce or piled up medical bills. Whatever the truth is, tell your creditor everything and present it all in written form with the proofs. After all, your creditor is a human too and he might have gone through a similar situation at some point of his life.
If you keep the tone polite and respectful and explain authentic financial challenges then your creditor will most likely accept your offer and write off a part of your debt. You need to be very patient when negotiating because this process takes time and your offer most likely will not be accepted in the first attempt. Just stay consistent with your efforts and keep working on the negotiation.
4-Know Your Right Under The FDCPA
Your debt settlement plan can be successful especially if you have good terms with your creditor. However, if you are dealing with an unfriendly and difficult creditor then it’s important to first learn about your rights under the Fair Debt Collection Practices. This will specifically tell what your collector can’t do under the law. For example;
- The creditor can’t threaten you with an arrest
- Falsely present themselves like they belong to the government or the IRS
- Shame you publicly
- Harass you
- Force you to pay the debts that you don’t owe
5-Negotiate With The Creditor Directly
One of the best tips to negotiate with your creditor for a lower settlement is that you take complete control of the process and do it directly. You need to take some action before the creditor turns your outstanding balance to a collection agency. These agencies will make your life a living hell especially with all the collection calls.
Moreover, when the debt is turned over to an agency, it gives your credit score an even bigger blow and it will be marked as “collection amounts” on your report instead of “missed payments”. To reach a more amicable solution, dealing with the creditor directly without the involvement of any collection agency is the wiser thing to do.
Legal Aspects Of Debt Settlement Negotiation
You have to study the legal considerations before starting a debt settlement negotiation. These considerations include; the settlement agreement, the details about the offer and the paperwork. Here are the most critical legal and ethical factors you should first know;
1-Complying With Regulations
Debt relief companies are to follow the consumer protection regulations of the federal and state authorities. They need to ensure fair practices and be transparent in their communications. The consumer protection agencies are specifically designed to protect people from any fraudulent practices that don’t abide by the law.
2-Legal Implications
A creditor has complete authority to take a legal action against a borrower to recover the outstanding balance. A debt settlement company should be aware of them all and they are supposed to guide the borrower of any such consequences before time. Here, a professional debt settlement lawyer can really help navigate any kind of legal challenges.
3-Protecting From Collection Agencies
When a consumer enrolls himself in a debt settlement program, the company is responsible for ceasing any transfer of debt to a collection agency. Basically, it becomes the duty of the debt relief company to provide relief to the consumer from all the harassing calls and harsh collection agency tactics.
Common Mistakes To Avoid In Debt Negotiations
In order for you to successfully settle your debt with your creditor, you first need to understand the creditor’s position and point of view too. It’s not just you facing all the financial hardships, in fact, it’s the creditor’s hard-earned money too, that you want him to write off. Other than that, here are a few more mistakes you need to avoid in debt negotiations;
- No Preparation
Entering a negotiation without understanding your entire financial situation is probably the worst mistake you’ll make. You should have all the details on your fingertips, including the amount you owe, the amount you can manage to pay in the settlement and your interest rates too.
- Making Unrealistic Offers
For a successful negotiation, you need to make realistic offers that benefit both you and the creditor too. You don’t want to damage your credibility in front of the creditor which is why making a reasonable offer is of utmost importance. You should offer the lender at least 50% of the total amount you owe. Anything less than that can end up in rejection.
- Using Emotional Appeal
Even if you are going through a really tough time, you are supposed to keep your emotions out of the settlement. Getting emotional and putting pressure on the creditor can really backfire and make things even worse for you.
- No Documentation
When your creditor agrees on your terms, you are supposed to document it and get it all in writing, including the terms and conditions, the amount you owe and the timeline you are given. Not doing so can cause misunderstandings between you and the creditor.
- Threatening Bankruptcy
As said earlier, bankruptcy should be one of your last resorts. It comes with certain consequences that can worsen your financial situation in the long run. So, before you threaten with it, make sure you have the complete understanding of what it is and what its implications are.
Sample Debt Settlement Letter
[DEBTOR’S NAME]
[STREET ADDRESS]
[CITY, STATE, ZIP CODE]
[PHONE]
[E-MAIL]
Date: [DATE]
[Creditor’s Name]
[Creditor’s Address]
[City, State, Zip Code]
Subject: Debt Settlement Offer For (Account Number)
Dear (Creditor’s Name) or “To Whom It May Concern”
I am writing to offer you a settlement for my outstanding debt that I owe related to my account number (Account number). Due to (explain your financial hardship like a medical emergency or loss of income), I am unable to pay the full amount due which is why I am making a proposal for settlement.
I want to offer you a lump sum amount of ($***) to settle my debt full and final. I request you to accept this offer and resolve my debt. If you accept this offer, please provide it all in writing, including the fact that after receiving the payment receipts, you will mark my debt as “paid in full” or “settled”.
I believe this is a fair resolution considering my financial circumstances. I am willing to pay the amount I can really afford at the moment. Please respond to this offer at your earliest convenience. If you have any questions, please feel free to contact me on (Contact Number) or my email address (Email Address).
Thank you for understanding. I will be waiting for your response.
Sincerely
(Your Name)
When To Consider Professional Debt Settlement Services
If negotiating with your creditor for debt settlement isn’t your cup of tea then hiring a professional debt relief company for it will be a valuable option for you.
Here are some situations where it would be best if you opt for professional services;
1-You Have A Significant Amount Of Outstanding Debt
If you are under the burden of a huge amount of unsecured debt like credit card debt, personal loans or medical bills and can’t afford to pay it off then hiring a debt settlement company will be worth it. With professional help, you can negotiate reduced settlements with your creditor.
2-You Can’t Afford The Monthly Payments
If you are struggling with a serious financial hardship like loss of income or a medical emergency and you can’t afford to make the monthly payments then using professional help will be the right thing to do. A debt settlement company can negotiate with your creditor on reducing your debt or at least reducing your monthly payments to make them more manageable for you.
3-You’ve Already Exhausted All Other Options
Before debt settlement, you first need to try other options like debt consolidation, credit card transfers or credit counseling. If nothing really works for you and you are just left with the option of bankruptcy then hiring a debt settlement company will be the right move.
Overall Verdict
Negotiating a debt settlement can really drain the life out of you especially when you do it on your own. It’s a tough process and you’ll have to convince your creditor on terms that benefit you both. However, the wiser solution here is that to avoid any overwhelming stress, you should look for a professional debt settlement company to deal with your creditors and collection agents. These companies have years of experience and they can work on a deal with your creditor to make things more manageable for you.
FAQs
Q1.Will Creditors Accept 50% Settlement?
Yes, 50% or more is just the right percentage that you need to negotiate with your creditor. Offering anything lower than 50% means that your creditor will most likely reject the negotiation.
Q2. Is There A Way To Stop Paying Credit Cards Legally?
Yes, you do have multiple options if you can’t afford to pay your credit cards. You can opt for a debt management program, file for bankruptcy or just negotiate a settlement with the company.
Q3. What Happens To Unpaid Debt After 5 years?
After 3 to 6 years pass, creditors can still collect the debt from the debtor but they won’t have much to work with. They cannot take any legal action against the debtor after a certain time period.
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