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The Debt Settlement Process: Do-it-yourself Guide

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Debt Settlement Negotiations: Do-it-yourself Guide

Making a deal on your own is not easy, but it can save you time and money compared with hiring a debt settlement company.

by Sean Pyles Senior Writer | Personal finance, financial debt Sean Pyles leads podcasting at NerdWallet as the producer and host of the NerdWallet’s “Smart Money” podcast. On “Smart Money,” Sean talks with Nerds across the NerdWallet Content team to answer questions from listeners regarding their personal finances. With a focus on shrewd and practical advice on money, Sean provides real-world guidance to help people improve their financial lives. Beyond answering listeners’ money concerns on “Smart Money” Sean also interviews guests who are not part of NerdWallet and produces special segments to explore topics like the racial wealth gap as well as how to get started investing and the history of student loans.

Before Sean lead podcasting at NerdWallet He also covered issues related to consumer debt. His work has appeared in USA Today, The New York Times as well as other publications. When when he’s not writing about personal finance, Sean can be found playing in the garden, taking runs and walking his dog for long walks. He lives in Ocean Shores, Washington.

Aug 6 7th, 2021

Editor: Kathy Hinson Lead Assigning Editor Personal finance, credit scoring, debt and money management Kathy Hinson leads the core personal finance team at NerdWallet. Previously, she spent 18 years with The Oregonian in Portland in positions such as copy desk chief and team leader for design and editing. Previous experience included news and copy editing for various Southern California newspapers, including the Los Angeles Times. She earned a bachelor’s degree in mass communication and journalism in The University of Iowa.

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Do-it-yourself , you engage in person with the creditors in an effort to pay off your debt at a lower amount than you originally were owed.

This strategy is most effective for debts that are in the process of becoming delinquent. If creditors see missed payments growing in severity, might be open to an arrangement because a partial settlement is more beneficial than not making a payment in any way.

Debt settlement can be a viable option in the event that your payments are at or below 90 days late, but it’s more feasible when you’re more than five months behind. But because you must be late on payments for the duration of negotiating, damage to your credit stacks up, and there’s no guarantee you’ll end in a settlement.

There are more effective ways to than DIY to settle your debt. If you decide to proceed, handling debt settlement negotiations yourself might be more effective rather than using a third party , which can be expensive and ineffective.

Here’s what DIY the process of debt negotiation compares to working with an agency for debt settlement and how you can negotiate with a creditor at your own.

DIY debt settlement vs. debt settlement companies

Time and cost are the most significant differences between debt settlement with an organization and self-help.

Debt-settlement advertisements have claimed these companies can help customers cut their debt by up to 50% and help them get free of debt as fast up to 36 months.

It is possible to achieve faster results through DIY debt settlement. If completing a plan with a company can take two and a half year or longer, you might be able to settle your debts yourself in just six months after going delinquent, according to Michael Bovee, a coach for debt settlement.

When you work with a debt-settling company will likely charge the company a commission of 20% or 25% to your enrolled debt after you have agreed to a negotiated settlement and make at least an amount to your creditor from an account that was set to be used for this purpose, as per the Center for Responsible Lending.

In addition, you’ll have to pay setup and monthly fees associated to the account. If you pay $9 a month to run the account, plus a set-up charge of just $9 you can be paying upwards of $330 in 36 months, on top of the cost for each debt that is settled.

Debt settlement firms can also have inconsistent success rates. According to the Consumer Financial Protection Bureau has recorded nearly 330 issues about firms that offer debt settlement since the year 2014. The most frequent complaints included fraud and high fees. In 2013, the CFPB took legal action against a particular company, American Debt Settlement Solutions and alleged that it had failed to settle any debt for 89% of its clients. The Florida-based company agreed to close its operations, according to an order from the court.

Although there’s no guarantee of results with debt settlement — through a company or on your ownyou’ll certainly get yourself a head start and avoid costly fees when you do by yourself.

How to pay off your debt:

How to do an DIY debt settlement: Step-by-Step

If you choose to bargain with a lender by yourself, getting through the process requires some experience and determination. Here’s a step-by step guide.

Step 1: Determine if you’re a good candidate

Take a look at these questions and decide whether DIY debt settlement is the best option:

Have you considered or ? Both can resolve debt at a lower risk. quicker recovery, and more secure results as compared to debt resolution.

Are your debts already delinquent? Many creditors will not consider settlement until your debts have been at least for 90 days past due. Bovee who is a debt settlement coach, says that you have a greater likelihood of getting a settlement with the original creditor that is at least five months past due that’s around the time many creditors will transfer the debt a .

Do you have the money to settleyour debt? Certain creditors may require to pay in one lump-sum, while others will be willing to accept payments plans. Regardless, you need to have the cash to secure every settlement arrangement.

Do you trust your negotiation skills? Confidence is key to DIY debt settlement. If you are confident that you can, you probably are able to. If your faith is waning then a DIY debt settlement might not be the right choice to take, Bovee says.

Step 2: Know your Terms

You need to negotiate two things: the amount you’ll have to pay and the way it will be reported to your credit scores.

In exchange for payment, you could be able to pay your debts at a rate of 40% to 50% of what you originally owed, Bovee says.

When you’re working to pay off your debts the percentage of what you are owed, think about what you’ll be able to pay as a dollar amount. Go across your financial plan and determine what that figure is. Note that on the portion of debt which is forgiven if the amount is at least $600.

As for your credit, it’s probably been wrecked because of missed payments prior to the time you’re able to settle. But you may be able to slightly redeem yourself by determining the way in which your debt was settled is recorded on your credit report.

Settled debts are generally listed as “Settled” as well as “Paid Settled,” which does not look good on credit reports. Instead, you should be able to convince your lender to mark the settled account “Paid as Accepted” to limit the damage.

Step 3. Make the call

Dealing with your creditor will require perseverance and convincing. This is a crucial moment in the process of settlement.

You might be able to resolve the settlement within a single call, or it might require several calls to come up with an arrangement that benefits each of you as well as your lender. If you don’t have luck with one representative Try calling back to get someone more flexible. Try asking for a manager in case you’re not getting any results from telephone representatives on the front line.

Approach the call with an enunciated narrative. Concisely portraying the financial hardship which caused you to not be able to pay your bills will help the creditor be more sympathetic to your situation.

Don’t lose sight of what you can afford to pay. Begin by lowering your price, and attempt to find an acceptable compromise. If you’re sure you’ll only pay half of the original amount Try offering 30 percent. Avoid agreeing to pay an amount that you aren’t able to afford.

Success rates can vary based what the debtor is. Some are open to settling but others aren’t. If you’re not making any gains, it might be time to consider alternatives to debt relief, such as Chapter 7 bankruptcy or a .

Step 4: Conclude the contract

Before you pay any amount, get the settlement terms and credit report in writing by your lender.

A written agreement is binding on both parties. They must adhere to the contract, however, should you default on a payment, the creditor can retract the settlement agreement, and you’ll end up back where you started.

“Debt settlement is all about commitment. If you don’t pay the debt is over,” Bovee says. “Say you’re on a settlement plan for 12 months. You will pay for the initial six months of the plan, however, when you don’t make it to month seven, they are allowed to take the previous one month (of payments) and apply it to the full amount.”

About the author: Sean Pyles is the executive producer and host of the NerdWallet’s Smart Money podcast. His work has appeared in The New York Times, USA Today and elsewhere.

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