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Discussions on Debt Settlement: Do-it-yourself Guide

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Debt Settlement Negotiations: Do-it-yourself Guide

Negotiating a debt settlement by yourself isn’t simple, but it could save you time and money over using a debt settlement service.

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

Before Sean was the host of podcasts at NerdWallet the company, he also wrote about topics that dealt with consumer debt. His writing has been featured throughout the media including USA Today, The New York Times and elsewhere. When when he’s not writing about personal finances, Sean can be found working in the garden, taking runs , and walking his dog for long walks. He lives in Ocean Shores, Washington.

Aug 6 Aug 6, 2021

Written by Kathy Hinson Lead Assigning Editor Personal finance, credit scoring, financial management and debt Kathy Hinson leads the core personal finance team at NerdWallet. In the past, she worked for 18 years working at The Oregonian in Portland in positions such as copy desk chief and team editor and designer. Her previous experience includes copy editing and news for a variety of Southern California newspapers, including the Los Angeles Times. She graduated with a bachelor’s in journalism and mass communications at the University of Iowa.

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If you do it yourself, you can engage directly with your creditors to reduce your debt by less than you initially owed.

This strategy is most effective for debts that are already delinquent. If creditors see missed payments increasing in number, might be willing to negotiate an arrangement because a partial settlement is preferable to no payment in any way.

The option of settling your debt is available when your bills are at or below 90 days late, but it’s more feasible when you’re more than five months behind. If you keep putting off payments while negotiations, the damage to your credit stacks up and there’s no guarantee you’ll end up with a deal.

There are better ways to than DIY to settle your debt. If you choose to pursue with debt settlement negotiations, doing it by yourself could be better instead of using a service option that can be costly and ineffective.

Let’s see how DIY debt settlement compares to using a debt settlement firm, and how to deal with creditors at your own.

DIY debt settlement vs. companies for debt settlement

Cost and time are the main distinctions between debt settlement through an organization and doing it yourself.

Advertisements for debt settlement have stated that the companies could help consumers reduce their debts by as much as 50% and help them get free of debt in as little than 36-months.

You may be able to see faster results when you DIY debt settlement. While completing a plan through a business can take up to two and two-and-a-half times longer or even more time, you could be able to pay off your debts yourself within six months of becoming delinquent, according to Michael Bovee, a debt settlement expert.

With a debt settlement company, you’ll likely pay the company a commission of 20% to 25% of your enrolled debt after you have agreed to an agreed-upon settlement and make at minimum an amount to your creditor from an account that was set specifically for this purpose as per the Center for Responsible Lending.

Additionally, you’ll need to pay the setup and monthly fees associated to the account. If you pay $9 per month to maintain the account, plus a set-up cost of $99, you could spend up to $330 over 36 months in addition to the fee taken for each debt that is settled.

Companies that settle debts also have inconsistent success rates. According to the Consumer Financial Protection Bureau has received nearly 330 issues against debt settlement firms since 2014. The most frequent complaints were excessive fees and fraud. In 2013, the CFPB took legal action against a particular company, American Debt Settlement Solutions and alleged that it had failed to pay any debts for 89% of its customers. The Florida-based company agreed to close its operations, as per the order of a judge.

While there are no guaranteed results with debt settlement -whether through a business or on your ownyou’ll certainly reduce time and costs when you do on your own.

>>How to pay off your debt:

How to make a DIY debt settlement: Step-by-Step

If you decide to negotiate with a debtor on your own, navigating the process requires some know-how and perseverance. Here’s a step-by step guide.

Step 1 Determine whether you’re a great candidate

Consider these questions to determine whether DIY credit settlement a viable option:

Have you considered it ? Both can resolve debt with less risk, quicker recovery and more predictable outcomes over debt negotiation.

Are your debts already delinquent? Many creditors will not look at settlement until your debts have been at least for 90 days late. Bovee is a debt settlement expert, says you’ll have a higher chances of settling a debt with the original creditor that is at least five months past due that’s around the time when many creditors will transfer the debt an .

Do you have enough money to settleyour debt? Certain creditors may require an all-in lump sum payment, whereas others will accept installment plans. However, you must be able to pay cash to back up every settlement arrangement.

Do you have confidence in your negotiation skills? It is essential to have confidence in your ability to negotiate DIY debt settlement. If you believe you’re capable, then you can. If your faith is waning, DIY debt settlement may not be the best route your situation, Bovee says.

Step 2: Be aware of your Terms

There’s a need to discuss two things: the amount you can pay and how it will be reported in your credit report.

To pay, you might be eligible to settle your debts for 40% to 50% of the amount you owed in the first place, Bovee says.

If you’re in the process of trying to pay off your debts as a percentage of what you are owed, think about the amount you could pay as a dollar amount. Comb across your financial plan and decide what that figure is. Make note of the part of debt that’s forgiven when the debt is greater than $600.

As for your credit you’re probably ruined because of missed payments prior to the time you’re ready to settle. However, you might be able to redeem yourself by understanding the manner in which the debt you settled is recorded in your credit reports.

Settled loans are typically marked with “Settled” as well as “Paid Settled,” which doesn’t look great in credit report reports. Instead, you should be able to convince your lender to mark the account as settled “Paid as Accepted” to lessen the damage.

Step 3: Call the number

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

You may be able to resolve the settlement within a single call however, it could require a few phone calls to find an agreement that works for the both of you, and for your creditor. If you don’t have luck with one person you’ve tried calling, try again to find someone who is more willing to work with you. Try asking for a manager if not making any progress with frontline phone representatives.

Approach the call with a concise and clear explanation. Simply describing the financial difficulty which caused you to not be able to pay the bills could make the creditor more sympathetic to your case.

Don’t lose sight of the amount you can afford to pay. Begin by offering a low price, then attempt to find a middle ground. If you’re sure you’ll only pay 50% of the original amount you can offer around 30%. Don’t agree to an amount you can’t afford.

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

Step 4: Sign off on the deal

Before making any payment be sure to get the terms of the settlement and credit reporting in the form of a letter with your financial institution.

A written agreement is binding on both parties. They are required to adhere to the agreement. However, should you default on a payment and the creditor is unable to make it up, they can revoke the settlement agreement, and you’ll be back where you started.

“Debt settlement is about commitment. If you don’t pay, it’s over,” Bovee says. “Say you’re on a settlement plan for 12 months. You pay the initial six months of the plan, however, in the event that you fail to pay month 7, they will use the last 6 months (of payments) then apply it towards the balance of your account.”

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

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