Debt Settlement means you are working with your creditors and or collections agencies to settle your debt for less than you owe. Also called debt negotiation, this process is only used for unsecured debt. Unsecured debt can be credit card debt, personal loans, and some medical bills. Mortgages and auto payments are secured debt. You cannot settle a secured debt; the lender will just take the house or car as settlement.
Trying to settle your debt with the original creditors like the credit card company or the bank you got a personal loan from, is different than trying to settle your debt with collections agencies.
Tip Number 1
It makes sense to talk to your original creditor on the phone. If you are 60 plus days past due and are past due on other bills, credit card companies and some banks will have programs in place. This may vary from offering a bonus of taking at least $50 off your balance if you just make a payment, to cutting your balance if you pay it off all at once.
For collection agencies, it is important that you deal with them by mail so that you have a paper trail of any agreements. If they call and want to talk about any offer you’ve made to settle the debt, remind them that the settlement offer you sent them requires a response in writing and hang up the phone. If you are corresponding with them, you don’t have to talk to them on the phone. It is important to get any settlement terms in writing before you sign a check or send them any money. Never expect the collection agency to honor verbal terms. You could pay the amount and have them try to collect more.
Employee turnover at many collection agencies can be high. Making a verbal agreement with one agent means that you have to believe they will be there two months later and that they will remember and honor the agreement. Send all correspondence by registered mail, keep good records and definitely keep a copy of every letter you write to them.
For more information, http://www.creditinfocenter.com has detailed information on setting your debts yourself and working with creditors and collection agencies.
Tip Number 2
Besides negotiating a monetary settlement with the creditor, negotiate what is reported to your credit rating. Start with trying to get them to agree to remove the listing on the credit report. Do this as part of the monetary settlement. Agree to pay X% of the debt by the X of next month if you remove the listing from the credit report.
If they won’t agree to a full deletion, work on the wording. The collection agency will want to list the settlement as something like ‘Paid Charge-off,’ ‘Paid Collection,’ or ‘Paid was 30-, 60-, or 90-days late.’ You want them to delete the debt, but if you can’t get them to budge on this, ask them to report only the word ‘paid’ with no qualifiers.
Tip Number 3
“Never let them see you sweat.” If you are eager or mention that you plan to buy a new home or anything else, they won’t settle. Be polite, be firm, hang up the phone if you are getting upset or don’t want to discuss it anymore. Remember, with the collection agencies you can work with them in writing and it is better to do so.
You don’t have to accept the first settlement offer the company makes. Take time, think about it and counter with a different offer.
Debt Settlement is a process. It isn’t the easiest thing to do and sometimes the results depend on personalities and or persistence. Depending on how many debts you need to settle, you may want to pursue credit counseling services or check out debt settlement companies. Just make sure to do your research into the company and the charges.
loading...
Related Links:
Debt Settlement is negotiating with your individual creditors or collection agencies to settle your debts for less than you owe. Other words for this process might be debt negotiation or debt arbitration. Once you’ve negotiated a new balance, you might have to pay the amount in full, or set up a reduced payment schedule that you can maintain.
This settlement process can be used on unsecured debt only. You cannot settle secured debts like mortgages and autos. The lender will just take the house or car as settlement.
Unsecured debt can be credit card debt, personal loans, and some medical bills.
Information – The Association of Settlement Companies
The Association of Settlement Companies (TASC) is a group association that “promotes fair business practices, consumer protection and industry standards for the debt settlement industry.” TASC is an organization focused on designing and implementing practices and standards for reputable companies. This organization is there to protect your interests, and lobby on behalf of debt settlement companies. All TASC member companies have pledge to uphold specific ideals governing business practices and ethics. There are over 184 members and growing. The site has search capability to find a member near you at http://www.tascsite.org/index.cfm?event=Members.
Information – Get it in Writing!
If you have reached a settlement agreement with a collection agency, don’t pay a dime until you get the settlement agreement in writing. Make sure the creditor understands that you won’t pay based on the verbal agreement; you will pay when you receive a written agreement that includes the major pieces of your agreement.
The agreement should include the information that identifies this loan, the collector by name and address and the debtor (you). All account information like the account number, balance, and original creditor should be on this contract. The amount agreed upon as the final payment should also be listed.
There should be a clause that reads something like—‘payment of the settled amount is deemed to fully indemnify the debtor from any future claims by any claimant regarding the debt.’ You can also ask that the contract or written agreement include the promise that the collection agency will remove the debt from all credit bureaus. Your original creditor will probably show the debt, but the collection agency notation would be taken off if you can get them to agree to it.
Also request a statement that you don’t acknowledge the debt is true, but you would like to close the issue.
Information – Get your free credit report and check for inaccuracies.
Before you start Debt Settlement, review your credit report and check for mistakes. Make sure your name is spelled right and that all your personal information is correct. Then make sure all the accounts belong to you. The first time I checked my credit report, there were several companies I had never heard of that had open accounts on the report. That was a very easy fix. Also check the paid in full accounts for accuracy. Everything needs to be correct.
You will go through this again a few months after you’ve settled to make sure the agreements were followed through.
There are several places where you can get your credit report for free. One of these is www.annualcreditreport.com. This site allows you to get a free credit report once a year from Experian, Equifax and TransUnion. Other free tools include one on Experian.com that allows you to examine how changes in your credit balances can improve your credit score. This tool can help you determine what debt reduction options would be best for you.
News – Changes In The Debt Settlement Industry
The government is looking at the Debt Settlement Industry and working to regulate what the companies can charge and how they work with consumers. TASC, the association above, is working on self-regulation. In the next few months and years there will continue to be regulatory changes in this industry and a focus on how these companies work.
loading...
