Debt Settlement in 3 Steps
Many consumers wait until their are drowning in debt before they decide to take action.
If you cannot handle paying all of your credit card bills, installment loans, and other bills that have piled up over the years, debt settlement is a legal way to cope with the mounting debt and pay off your debts faster. While debtors would prefer to receive the entire amount you owe, they may be open to debt negotiation when you have outstanding balances that may not be repaid unless the balance due is brought down.
The creditor is not going to openly tell you about these programs because their goal is getting as much money out of you as possible. If you are not sure how to negotiate debt and settle your balances, read on and take action.
Are You A Good Candidate For Debt Settlement?
Before you start trying to negotiate with your creditors it is time to determine whether or not you are a good candidate.
You could be wasting your time contacting the creditors if you do not have a real need for debt negotiation. Here are some of the reasons you might be considered a good candidate:
1. You have outstanding balances on unsecured debt.
2. You are past due on your payments by at least two months.
3. You cannot afford to repay your bills.
4. You will be able to repay the debt if the balances are reduced.
5. You are in the process of researching your bankruptcy options.
How to Negotiate Your Debt
You can either enter a debt settlement program offered by an attorney or you can try to complete the process on your own. If you opt to negotiate your debt on your own, you should understand how the process works and be willing to put in the time and effort to reduce your balances. Here are the steps that you need to take to ensure that the time you spend is spent wisely:
1. Determine Which Repayment Option Will Work Best
Creditors offer four different options for repayment when you negotiate your debt. Depending on which method you choose, the creditor will reduce the balance due by a small amount or a large amount. Here are the four types of settlement you can choose from:
— Lump-sum: Pay off the total agreed amount in full.
— Workout arrangements: The bank will eliminate the interest or lower the interest so that you are not assessed punitive fees. This is a temporary agreement to help you manage your payments and pay down the principal.
— Debt Management Programs: Combine all of the debts owed into a single program where you make one lower payment. These programs are generally offered by attorneys and non-profit organizations.
— Forbearance: This method requires you to pay every penny you owe but will give you breathing room for a short period of time.
2. Examine Your Income
Next, you need to determine how much you bring in and how much you spend each month. You need to know how much you can pay after you pay for your living expenses and all of the bills. Make sure to give yourself wiggle room.
3. Call the Company to Negotiate
Call the company directly and start trying to negotiate your debt. This may take several calls and finding the right representative to speak with can be difficult. Ask for a credit manager with authority so that you do not waste your time. Make sure that you are upfront and explain that you cannot pay off the debt unless it is negotiated. If and when you reach a deal with the creditor, make sure to get the agreement in writing. Do this before you pay.
Negotiating debt is not easy when you take on the task on your own. If this is too much for you to do on your own, you may be able to enter into a program with a non-profit organization. Make sure to stick to your agreement so that you can cope with your debt.
This post was provided by Jen Finnick, a personal finance and debt expert. She recommends people uses the services from SOS Dettes for their help in matters of credit counselling Montreal.