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Debt Settlement Negotiations: A Do-It-Yourself Guide
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The Debt Settlement Process: Do-it-yourself Guide
Negotiating a debt settlement on your own is not simple, but it could help you save time and money when compared to using a debt settlement service.
By Sean Pyles Senior Writer | Personal finance and financial debt Sean Pyles leads podcasting at NerdWallet as the host and producer of NerdWallet's "Smart Money" podcast. On "Smart Money" Sean talks with Nerds across the NerdWallet Content team to answer listeners' personal finance questions. With a focus on thoughtful and actionable money advice, Sean provides real-world guidance to help people improve in their finances. Beyond answering listeners' money concerns on "Smart Money" Sean also interviews guests outside of NerdWallet and also creates special segments to explore topics like the racial wealth gap and how to begin investing, and the history of student loans.
Before Sean took over podcasting at NerdWallet the company, he also wrote about topics that dealt with consumer debt. His work has appeared throughout the media including USA Today, The New York Times and other publications. When he's not writing about personal finance, Sean can be found digging around his garden, going on walks, or walking his dog for long walks. Sean is located at Ocean Shores, Washington.
Updated August 6, 2021 at 9:38AM PDT
Edited by Kathy Hinson Lead Assigning Editor Personal finances, credit scoring debt and money management Kathy Hinson leads the Core Personal Finance team at NerdWallet. Prior to joining NerdWallet, she worked for 18 years working at The Oregonian in Portland in positions such as copy desk chief and team leader for design and editing. Previous experience included copy editing and news for several Southern California newspapers, including the Los Angeles Times. She received a bachelor's degree in mass communication and journalism from The University of Iowa.
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With do-it-yourself , you engage direct with creditors in an effort to settle your debt for less than what you originally owed.
The strategy works best when debts are already delinquent. Creditors, seeing missed payments stacking up, may consider settlement since a the partial payment is more beneficial than none in any way.
The option of settling your debt is available if your payments are at least 90 days behind, but it's more feasible when you're more than five months behind. However, since you'll continue to miss payments while negotiating, credit-related damage builds up, and there is no guarantee you'll end having a bargain.
There are other options instead of DIY to settle your debt. If you decide to take the plunge by negotiating debt settlement by yourself is a more effective alternative than a , which is expensive and ineffective.
This is the way DIY the process of debt negotiation compares to using a debt settlement company, and the best way to bargain with a creditor by yourself.
DIY debt settlement contrasts with. companies for debt settlement
Time and cost are the primary differences between debt settlement through the services of a firm as well as self-contained.
Advertising for debt-settlement has claimed that the companies could help consumers reduce their debts by as much as 50% and help them get out of debt as fast up to 36 months.
It is possible to see faster results when you DIY debt settlement. If completing a plan through an organization can take two and an half year or longer, you may be able to pay off your debts yourself with just 6 months from going delinquent, according to debt settlement coach Michael Bovee.
When you work with a debt-settling company typically, you'll pay an amount of 20 percent up to 25 percent of your enrolled debt after you have agreed to a negotiated settlement and make at minimum one payment to the creditor through an account that was set specifically for this purpose in accordance with the Center for Responsible Lending.
Additionally, you'll be required to pay for monthly and setup fees that are associated with your payment account. If you pay $9 a month to maintain the account, plus a set-up cost of $99, you can spend up to $330 over 36 months on top of the fee taken for each debt that is settled.
Companies that settle debts also have varying success rates. They also have inconsistent success rates. Consumer Financial Protection Bureau has received nearly 330 issues against debt settlement firms in the year 2014. The most frequent complaints included fraud and high fees. In 2013 the CFPB brought legal action against a particular firm, American Debt Settlement Solutions which was found to not settle any debt for the majority of their customers. The Florida-based firm has agreed to close its operations, according to a court order.
Although there's no guarantee of outcomes with debt settlementeither through a firm or by yourselfyou'll certainly save yourself time and fees by doing it on your own.
How to pay off your debt:
How to conduct the DIY debt settlement: Step-by-Step
If you decide to talk to a creditor on your own, understanding the process requires some know-how and determination. This is a step-by-step guide.
Step 1: Find out if you're a suitable candidate
Take a look at these questions and decide whether DIY credit settlement a good option:
Have you thought about it ? Both can resolve debt with less risk, faster recovery and more predictable outcomes than debt settlement.
Are your debts already delinquent? Most creditors will not even look at settlement until your debts are at least 90 days past due. Bovee, the debt settlement coach, says you'll have a higher chances of settling a debt with the creditor who originally issued the loan that is five months or more delinquent and that's about the time many creditors will transfer the debt an .
Do you have the money to settle? Certain creditors may want an all-in lump sum payment, whereas others will accept installment plans. Whatever you decide to do, it is essential to be able to pay cash to back up every settlement arrangement.
Do you trust your negotiation skills? Confidence is key to DIY the process of settling debt. If you believe you are capable, then you are able to. If your confidence is wavering then a DIY debt settlement might not be the right choice for you, Bovee says.
Step 2: Know your terminology
You need to negotiate two things: how much you're willing to pay and also how it'll appear on your credit reports.
For payment, you may be able to settle your debts for 40% to 50% of what you originally owed, Bovee says.
While you're technically working to settle your debt by a percentage of what you owe, think about the amount you're able to pay in an exact dollar amount. Go across your financial plan and determine the amount. Take note of the amount of debt forgiven, in the event of a debt amounting to greater than $600.
If you're looking to improve your credit score you're probably ruined because of missed payments prior to the time you're eligible to pay. But you may be able to redeem yourself by understanding the way in which your debt was settled appears in your credit reports.
Settled loans are typically listed with "Settled" as well as "Paid Settled," which does not look good when you look at credit scores. Instead, you'll be able to convince your lender to mark the settlement account "Paid as Accepted" to limit the damage.
Step 3. Make the call
Dealing with your creditor will require perseverance and convincing. This is an important step during the settlement process.
It is possible to settle the debt within a single call but it may take a few calls to come up with an arrangement that benefits the both of you, and for your lender. If you're having trouble with one person you've tried calling, try another time to find someone who is more accommodating. Ask for a manager in case you're having trouble with the frontline representatives.
Prepare for the meeting with an enunciated account. In a concise way, describing the financial difficulties which caused you to not be able to pay the bills could increase the sympathy of the creditor to your argument.
Don't lose sight of what you can afford to pay. Begin by lowering your price, and try to work toward an acceptable compromise. If you know you can only pay 50% of your original debt Try offering 30 percent. Beware of agreeing to pay an amount you can't afford.
Success rates can vary based upon the lender. Some are open to settling, others aren't. If you're not seeing any gains, it might be time to reconsider alternatives to debt relief including Chapter 7 bankruptcy or a .
Step 4: Sign off on the agreement
Before you make any payment be sure to get the settlement conditions and credit report in the form of a letter from your creditor.
A written agreement holds both parties responsible. They have to honor the contract, however, in the event that you fail to pay and the creditor is unable to make it up, they can revoke the settlement agreement, and you'll be back exactly where you were.
"Debt settlement is about commitment. If you fail to pay and it's not a good thing," Bovee says. "Say you have an agreement for a 12-month period. The initial six months of the plan, but in the event that you fail to pay month 7, they will use the last 6 months (of payments) then put it toward the balance of your account."
About the author: Sean Pyles is the director of production and host on NerdWallet's Smart Money podcast. His writing has been featured in The New York Times, USA Today and elsewhere.
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