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The Debt Settlement Process: Do-it-yourself Guide
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The Debt Settlement Process: A Do-It-Yourself Guide
The process of negotiating a debt settlement by yourself isn't straightforward, but it is possible to save you time and money when compared to hiring a debt settlement company.
by Sean Pyles Senior Writer | Personal finances, credit, and personal finance Sean Pyles leads podcasting at NerdWallet as the producer and host of NerdWallet's "Smart Money" podcast. In "Smart Money," Sean talks with Nerds across the NerdWallet Content team to answer the listeners' questions about personal finance. With a focus on thoughtful and practical money tips, Sean provides real-world guidance that can help consumers better in their finances. Beyond answering listeners' money questions on "Smart Money," Sean also interviews guests who are not part of NerdWallet and creates special segments to explore topics such as the racial gap in wealth and how to begin investing, and the background for student loans.
Before Sean was the host of podcasts at NerdWallet He also covered issues concerning 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 finances, Sean can be found working in his garden, going for runs , and walking his dog for long walks. He is based in Ocean Shores, Washington.
Updated August 6, 2021 at 9:38AM PDT
Written by Kathy Hinson Lead Assigning Editor Personal finance, 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 at The Oregonian in Portland in roles including copy desk chief and team leader for design and editing. Her previous experience includes copy editing and news for several Southern California newspapers, including the Los Angeles Times. She received a bachelor's degree in journalism and mass communications from Iowa's University of Iowa.
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If you do it yourself, you can engage in person with the creditors in an effort to settle your debt for less than what you originally owed.
The strategy works best for debts that are in arrears. If creditors see missed payments growing in severity, may be open to an agreement because a partial payment is better than making no payment at all.
Debt settlement can be a viable option if your payments are at least 90 days behind It's more likely when you're more than five months behind. If you continue to miss payments while trying to negotiate, credit damage piles up, and there is no guarantee that you'll come in a settlement.
There are more effective ways to instead of DIY to settle your debt. If you decide to take the plunge, handling debt settlement negotiations yourself may be a better alternative to using a which is expensive and ineffective.
Let's see what DIY the process of debt negotiation compares to using a debt settlement company, and the best way to negotiate with a creditor on your own.
DIY debt settlement vs. debt settlement companies
Time and cost are the most significant differences between debt settlement with an organization and doing it yourself.
Advertising for debt-settlement has claimed that the companies could help consumers reduce their debts by up to 50% and get them free of debt in as little than 36-months.
You could be able to see faster results when you the option of settling your debts yourself. While completing a plan through a business can take up to two and a half times longer or even more time, you might be able to settle your debts yourself within six months of becoming in default, according to Michael Bovee, a coach for debt settlement.
With a debt settlement company will likely charge a fee of 20% to 25% of the enrolled debt once you agree to an agreement to a settlement that you negotiate and then make at minimum one payment to the creditor through an account specifically set to be used for this purpose, as per the Center for Responsible Lending.
In addition, you'll likely be required to pay for charges for setup and monthly payments that come with your payment account. If you pay $9 per month to maintain the account, plus a set-up charge of just $9 you could be paying upwards of $330 in 36 months, on top of the amount you pay for each debt settled.
Debt settlement companies also can be unable to achieve their goals due to inconsistent. The Consumer Financial Protection Bureau has logged nearly 330 issues about firms that offer debt settlement in the year 2014. Among the most common issues included fraud and high fees. In 2013 the CFPB took legal action against one company, American Debt Settlement Solutions, saying it failed to pay any debts for 89% of its customers. The company based in Florida has agreed to close its operations, according to a court order.
While there are no guaranteed results from debt settlementwhether through a business or by yourselfyou'll get yourself a head start and avoid costly fees if you go it on your own.
>>How to pay off your debt:
How to make a DIY debt settlement step-by-step
If you choose to talk to a lender by yourself, getting through the process requires some know-how and perseverance. This is a step-by-step guide.
Step 1: Determine if you're a good candidate
Take a look at these questions and decide which one is the best option for you. DIY credit settlement the best option:
Have you thought about it ? Both can resolve debt with less risk, speedier recovery and more predictable outcomes over debt negotiation.
Are your debts already delinquent? Most creditors will not even consider settlement until your debts must be at least 90-days past due. Bovee, the debt settlement coach, suggests you'll have a higher likelihood of getting a settlement with the creditor who originally issued the loan that is around five months delinquent, which is around the time many creditors will transfer the debt a .
Do you have enough 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 have cash available to secure any settlement agreement.
Do you believe in your negotiation skills? Confidence is key to DIY credit settlement. If you are confident that you're capable, you will. If your confidence is wavering, DIY debt settlement may not be the best route to take, Bovee says.
Step 2: Be aware of your terminology
You need to negotiate two things: how much you'll be able to pay and how it'll appear on your credit reports.
In exchange for payment, you could be eligible to settle your debts for 40 percent to 50 percent of the amount you were originally owed, Bovee says.
If you're trying to pay off your debts as a percentage of what you owe, you should also think about the amount you can pay as an exact dollar amount. Look over your finances and figure out the amount. Make note of the part of debt that's forgiven if the amount is at least $600.
In terms of your credit score, it's probably been wrecked because of missed payments prior to the time you're able to settle. But you may be able to redeem yourself by understanding the way in which your debt was settled appears on your credit reports.
Settled debts are usually identified with "Settled" or "Paid Settled," which isn't a good look when you look at credit scores. Instead, try to get your creditor to mark the settled account "Paid as Agreed" to minimize the damage.
Step 3. Call the number
Dealing with your creditor requires persistence and persuasiveness. It is a crucial step during the settlement process.
It is possible to settle the payment in one go however, it could require a few phone calls to reach an agreement that works for the both of you, and for your lender. If you don't have luck with a particular representative, try calling for a second time to obtain someone more willing to work with you. Try asking for a manager in case you're not getting any results from telephone representatives on the front line.
Prepare for the meeting with a clear account. In a concise way, describing the financial difficulties which caused you to not be able to pay your bills will make the creditor more sympathetic to your case.
Be aware of the amount you could reasonably afford. Begin by lowering your price, and try to work toward an agreement that is in the middle. If you are aware that you will only pay half of the original amount Try offering 30%. Beware of agreeing to pay an amount you can't afford.
Success rates can vary based on the creditor. Some are open to settling while others won't. If you're not making any gains, it might be time to reconsider other options for debt relief such as Chapter 7 bankruptcy or a .
Step 4: Finalize the deal
Before you make any payment make sure you have the settlement conditions and credit reporting in the form of a letter from your creditor.
A written agreement holds both parties responsible. They have to honor the contract, however, should you default on a payment then the creditor has the right to revoke the settlement agreement and you'll end up back where you left off.
"Debt settlement is about commitment. If you fail to pay, it's over," Bovee says. "Say you're using an agreement for a 12-month period. You pay the beginning six months in advance, however, when you don't make it to month 7, they will are allowed to take the previous one month (of payments) and apply it to the full amount."
The author's bio: Sean Pyles is the executive producer and host on the NerdWallet's Smart Money podcast. His writing has been featured in The New York Times, USA Today and elsewhere.
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