By Wendy Clay on November 29, 2011
 Debt settlement is the process of negotiating with creditors to significantly lower a debt amount and create a subsequent repayment plan. Negotiations with creditors can occur one of two ways, either a borrower will elicit the help of a debt negotiation company for a small fee or they can conduct the negotiations on their own. Typically debt settlement companies are able to attain better settlements because of their wide network of connections and experience dealing with creditors, but this is not to say that borrowers are incapable of negotiating beneficial settlements on their own. When deciding whether to utilize a debt negotiation company, borrowers should consider whether they have: the time to train themselves to negotiate with creditors and learn about effective debt management; connections with key debt and lending officials at financial institutions, credit agencies, and credit reporting bureaus; a detail oriented nature to enable them to keep records of negotiations; and the ability to accept defeat caused by their own miscalculations. If the answer to these questions is yes, here are some guidelines for conducting negotiations without the assistance of debt negotiation companies.
Before beginning negotiations borrowers need to consider which debts they can settle, what amount they should expect to settle for, and how they wish to pay their settlements. Debtors can settle medical bills, credit card debt, personal loans, and other forms of unsecured debts. Typical settlement amounts fall within the range of 40-60% of the actual debt amount when dealing with the original creditor and about 25% of the total debt amount when settling with a collection agency, so be sure to find out who owns your debt. Also, the older the debt the lower the settlement amount should be, so it is important to check the age of the debt (It is also important to note that debts that have surpassed your state’s statute of limitations may have been written off, and no longer require payment from you, so check this as well). Once a settlement has been reached, it is preferable for borrowers to pay off debt settlements through a lump sum payment as it prevents interest from being added to the new debt amount, but if a borrower does not have the money to pay in one lump sum, repayment plans can be negotiated. For this reason it is important for a borrower to examine their budget to figure out how much they can afford to pay towards a settlement.
Once you have considered these issues you are ready to begin negotiations. When at all possible, it is best to conduct negotiations in person, but if this is not possible remain professional and be persistent. Each time you contact your creditor take note of who you talk with and what you discuss, then send a copy of this information by means of a letter to your creditors for confirmation. Make a reasonable initial offer when negotiating, otherwise you may face immediate rejection, and do not appear too eager to settle. Before finalizing your settlement also negotiate your credit report so that your debt will be listed as “Paid in Full” or “Debt Satisfied”. Once you have everything in writing you can then make payments, and if at all possible make payments using money orders rather than checks or credit cards to prevent creditors from accessing all of your banking information.
The debt settlement process as laid out above does require much hard work, but in the end this hard work normally pays off. Just remember, the key to successful debt settlement negotiations is persistence.
Sources:
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O'Connell, Brian Negotiating a Debt Settlement. Investopedia, 7 Aug. 2008. Web. 3 Nov. 2011
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Settling Your Debts. 23 June 2011. 3 Nov. 2011
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