If you have more debt than you can handle — debt that you doubt you’ll be able to pay off anytime soon, if ever at all — it’s worth exploring debt settlement. Though there is no guarantee a creditor will settle debt, chances are good, at least when it comes to unsecured debt. With secured debt, such as a mortgage or auto loan, your failure to pay simply means the creditor forecloses on your home or repossesses your car. With unsecured debt, they have no such bargaining power. While creditors certainly have legal legs to stand on, and may sue you to collect on unsecured debt, in most cases they have more to gain by forgoing the expense of a lawsuit and settling for less than you owe.
Unsecured debts that you may be able to settle include:
- medical bills
- credit cards
- department store cards
- personal loans
- student loans
- bounced checks
When making an offer to a creditor, be sure to:
- Communicate via registered mail, receipt requested. This way you have a paper trail of your communication. Not only will you have their letters of response to hold onto, but sending your own letters registered, receipt requested, means you have proof when they receive them. This could all prove important down the road if and when there is any dispute over the terms of any settlement that may be reached.
- If you do have any phone communication, follow it up with a letter summarizing the points of the conversation. That said, do your best to avoid phone conversations at all.
- Start your offer at 25 percent or less of what you owe. Expect them to say no. When they counter-offer, it’s your turn to object. Stick to your guns, offering no more than 25 percent. Do the same on the second counter-offer, unless it’s a good one.
- If the creditor wants you to make payments, object. This could imply extra interest. Instead, negotiate for a lump sum. If you don’t have it, then wait until you do.
- Include in your terms of negotiation removal of the negative listing from your credit report.
And remember, it is not necessary (or wise) to seek the help of a debt negotiation company. You can and should try to settle debt yourself!