You may want to consider seeking out help from a professional debt settlement company. what to do in a financial crisis.
However, experts in consumer protection advise against asking debt settlement companies to negotiate your debt settlement. Unfortunately, many debt settlement companies can overpromise and deliver less than they promise, potentially leaving you in a similar financial hole to the one you want to escape.
Another option is to settle the debt on yourself. DIY debt settlement may be more successful than working with a debt settlement agency. Professional debt settlement is often the most efficient and cost-effective way to erase debt.
The basics of debt settlement
To reduce your debt, you can negotiate with creditors. With debt settlement, unlike other options like debt consolidation, a debt management plan or debt management plan, you pay only a part of the principal.
Let’s say you’re behind on $5,000 due to one credit provider and $5,000 due to another credit bureau. In order for you to get at most some of their money they accept a lump-sum payment that equals 50% of what your owe. So instead of possibly not getting anything from you at all, each creditor receives an $2,500 lump-sum payment.
Benefits to DIY Debt Settlement
Do-it yourself debt settlement is best for cost. DIY settlements avoid the costs associated with professional debt settlement.
A debt settlement company might charge fees that range from 15% to 25% of a settled amount. You could face a charge of as high as $1250 for settling $10,000 debts worth $5,000.
You have full control over the outcome of the DIY debt settlement process.
DIY Debt Relief: Downsides
No matter whether you resolve the issue yourself or contact a debt settlement company to help you, you might be subject to a tax penalty if you reach a settlement. If you are able to forgive $600 or more of your debts, income taxes will be due on that amount.
One downside to DIY and professional debt settlement is the fact that your credit score could plummet. The settlement will also remain on your credit file for seven years.
You’ll be responsible for your own debt if you decide DIY. You will not have a debt settlement professional, or anyone else to negotiate for your benefit.
These seven steps will help you start the DIY debt settlement journey.
1. Analyze your debts. How much money do you owe? Who are the creditors Is it possible that the debts can be paid off without having to reach a settlement agreement? Would it be possible to eliminate the debts but not receive a payment on the amount owed?
2. Do your homework. You can search online to find out how creditors (or creditors if the creditors no longer manage the debts) handle debt settlement. If you don’t find the information online or are having trouble finding it, call your creditors. Ask them how they deal with debt resolution. Not all creditors will agree on a debt settlement.
3. To negotiate with creditors, you should have some cash. Many creditors will insist on a lump-sum payment. Some may prefer monthly payments.
4. It’s time to negotiate. The majority of creditors will accept 40% to half the amount you owe. It could even be more depending on whether it’s a debt collector. To make it possible to negotiate, your initial lump-sum proposal should be lower than the 40% to 50 percent range.
5. Take your offer to the creditor. Ask for a manager. It might take you several calls to reach someone who is understanding of your situation.
6. Let the creditor know. This will help you to protect yourself against any potential problems.
7. Pay the money. This means you will make timely payments or timely payments if your plan is longer-term.
How to Negotiate and Work with Creditors
You should try to settle debt for half of what you owe. This goal will be achievable based upon your creditor’s history with debt settlement. Try to settle your debt for as much as $1,500, if you owe more than $3,000 To allow both you and the creditor time to negotiate, however, you may offer to pay a lower amount than 50%.
You should inform the creditor about any money you have saved up to make payments. This will help you negotiate better. If you are willing to enter into a repayment plan, be sure to ask the creditor if they will reduce the interest rate of the debt in order for you not to have to pay more. Keep a log of all communications you make with creditors during negotiation. Be calm and honest. You won’t get anywhere if you become emotional and lie to your cause.
Don’t forget that most creditors won’t settle debts if you aren’t making regular payments. In addition, the original creditor may demand that you pay as high as 80% of your overdue balance if you’re trying to negotiate with them.
How to Negotiate with Debt Collectors
In some cases, your creditor may have turned your loan over to a collection agency. In order to make money, debt collectors collect past-due accounts that were created with a creditor such as a bank or credit card company.
Remember to be patient with debt collectors. It may take several attempts before you reach the right settlement. It may take several attempts to reach a settlement that you are comfortable with. Also, find out if the debt collector is willing and able to settle the debt through a payment schedule rather than all at once with one lump-sum.
The process of negotiating DIY debt settlements will require a lot more time and effort than you might think. Additionally, it can take some time to reach an agreement. But, in the end, your efforts may be worth it, especially if you are able position yourself to have a better financial life.