Debt settlement is an efficient approach where you need to pay a fraction of your debt amount. It is a convenient way of getting rid of massive debt within a short time. Your outstanding balance can be reduced by the debt you need to pay.
Ways to settle your debts successfully
If you are going through financial hardship and cannot repay your debts in full, you can consider the debt settlement process.
As I have mentioned, debt settlement can help you reduce a significant amount of debt, and it helps you become debt-free fast.
You can settle your debt in 2 ways.
- Settling debts on your own (DIY debt settlement)
- Settling debts by enrolling in a debt settlement program. (professional debt settlement)
1. What is a Do-it-yourself (DIY) debt settlement?
In a debt settlement process, the debtor has to convince the creditor to settle the debts. This convincing phase is called "negotiation". In general, the creditors don't agree to settle the debts because settling debts is not beneficial for them as they are not getting the total amount the debtors owe.
The debtor has to make the creditor believe that he/she (the debtor) cannot repay the entire amount due to financial hardship. Hence, requesting the creditors to pay a reduced amount of debt. Considering the financial hardship, the creditors might agree with the proposal of settling debts.
The negotiation process has to be very genuine so that the creditor understands that the debtor is going through hardship.
2. What is a professional debt settlement?
Sometimes, the process of negotiation with the creditors or debt collection agency is not easy. You have to do the work strategically to get success in reducing the debt amount.
Thus, many people prefer to enroll in a debt settlement program. In the professional debt settlement process, the debt settlement professionals handle the task of negotiation. The company negotiates on their behalf with creditors so that the debts get cleared up soon. However, professional debt settlement comes with a certain fee.
What if you want to save more in debt settlement?
Remember, when you are settling debts, you are already in profit as you are paying a reduced amount but not the total debt amount you owe.
If you want to save more in debt settlement, you may have to consider the DIY debt settlement.
If you get help from professionals for debt settlement, they charge you a certain amount of money for their services. But do-it-yourself debt settlement (DIY) helps you save this tiny amount of money, enabling you to settle your debts on your own without enrolling in a debt relief program.
So, it is clear that considering a DIY settlement can save you a certain amount that you need to pay to the settlement company to enroll in their settlement program.
4 Tips to save money while settling debts
There are some ways you can consider saving money while settling your debts on your own.
Pay in a lump sum
You should request your creditors to allow you to make a lump sum payment on your debts. That will help you to get rid of your debts in one go.
You can arrange the money by saving money from your daily expenses or by selling some unused goods.
Remember, ignoring debts can cause more financial problems. So, settle debts before it creates more trouble.
Determine your total monthly costs
It would be best to determine your monthly expenses to get to know the exact amount you may need in a particular month. Unless you know the amount you need to spend in a month, you will not know how much you have to save in a month to make monthly payments to the creditors.
You can get a better understanding of managing finances
It will also be an excellent learning process if you opt for it yourself debt settlement services. It will allow you to remain permanently at the helm of affairs regarding your finances. Gradually, you will better understand the nitty-gritty of budgeting, personal finances, and know about the working of the debt collection systems. Once you know the basics of personal finances, you will significantly reduce the chances of you falling into debt traps.
Negotiation is the key
To save money in debt settlement, you may have to consider a DIY debt settlement option. But the negotiation process can be complicated for you. Thus make sure you have all the negotiation skills to convince your creditors for settlement.
More tips to negotiate with your creditors to save money in a settlement
Following tips can help you to negotiate with collection agencies or creditors for the best debt settlement deal.
Here you go:
- Verify debt: When you negotiate with a creditor or collection agency for your credit card debt, you should first have a copy of your credit report. This report may help you to get a clear idea of what your debt amount is and how the debt affects your credit report. Ask the creditor to verify the debt to know how much you owe.
- Approach the creditor for a settlement: The creditors may negotiate with you for the debt only when they think you may not pay off the debts you have already taken. If you don’t make debt payments for six months or more than that, the creditors may sell your debt to the collection agencies. If you didn’t make monthly payments for a long time, then the collection agency can harass you by calling you again and again. Thus, it would help if you initiate the negotiation for settlement with your creditors or collection agencies as soon as possible.
- Make an offer: In a settlement, usually, you need to repay a certain percentage of the total debt amount. Generally, the creditors accept a lump sum payment of money, which gets accumulated in the settlement account but in some cases, they may accept a payment plan if you cannot pay your debt in full. Remember to receive the terms and conditions in writing before you make any payments.
- Talk about debt settlement in person: Don’t initiate the settlement process over the phone with the debt collectors when settling debts. Even if you have to talk to them over the phone, make sure you note down the time and the name of the person you’ve spoken to. Keep the records of every conversation and follow up by sending letters.
- Keep patience while negotiating: You should always maintain patience while negotiating with collection agencies for debt settlement. Do not lose your temper. If required, you can inform them that you may have to file bankruptcy if they don't agree on a reduced payoff amount. They may agree on settlement as they may get nothing if you file bankruptcy.
- Do not show your eagerness to settle: You may want to settle the debts fast since you want to buy a property. However, you may not get the best deal if you show your eagerness to pay the debts quickly. Usually, the collectors do not agree with the first proposal you make. You have to continue negotiating and making them understand your eagerness to pay the debts quickly on a reduced payoff amount.
- Get everything in writing: You will make a big mistake if you start making payments without having a written agreement where the terms and conditions are mentioned in detail. So, do not rely on verbal promises; always insist on having a written agreement. Go through the terms carefully and then make payments as per the amount agreed upon.
- Request to remove the negative statements: Send all letters through certified mail with return receipt requests. Keep records of all communication so that you can produce them in the future if required. While negotiating with the collectors for debt settlement, make sure you negotiate to remove negative statements from your reports. If needed, you can request to remove the negative comments as a part of the settlement process. Negotiate with collectors to update the account statuses as “Paid in full” instead of “Paid as settled.” It will be favorable for your credit score.
Lastly, it is advisable to avoid incurring huge credit card debts. Remember, credit cards are not free money. You have to pay the amount in full and within time. Otherwise, you will fall into the debt cycle, and soon your accounts will go to the collection agencies for collection. All this can take a toll on your credit score. So, if you want to save money, you may have to manage your credit cards properly. Use credit cards only when you can afford the bill. Practicing good financial habits and learning the proper way to manage money can save you money thoroughly.
