Reach a Debt Reduction Settlement |
By Kari Johnson on April 12, 2011
.jpg.aspx?width=75&height=75) If you have found your way here, you are probably in debt, and you have made the first and most important step: realizing you need to do something about it. If you owe more money than you can afford to pay, a debt reduction settlement may be the something you are thinking about.
Reducing your debt is a settlement you can negotiate yourself. First, you would need to make a list of how much money you owe and who you owe it to, and then you can decide how much you can afford to pay each of them. This works best if you have come into a lump sum of money or have saved some money (so long as this doesn’t use all of your savings). You can call your creditors and tell the people who deal with settlement arrangements (not customer relations) that you want to pay them, and how much you can afford to pay them, although you might want to start a little lower than your chosen amount to give you some wiggle room.
There are some companies that specialize in debt reduction settlement. If you choose to use one of them, they will ask you to pay them monthly instead of your creditors so they can build an amount large enough to offer to your creditors. This can be dangerous because your creditors may “charge off” your debts by the time you have built up an amount large enough for a settlement and that will be put on your credit report.
Either way, be sure you think about how much you can afford to pay before you agree to a negotiation. You still need to have some savings in case of emergencies or you will end up back where you started.
A reduction seems like the best solution: who doesn’t want to cut the amount of debt they owe? Creditors would stop calling, the debt would stop increasing because of interest, and this could get you back in the black. However, this can also be written onto your credit report as “settled,” which does not bode well for your credit report.
You may also be wondering why your creditors would agree to this. Why would they settle for less than you owe them? Even though they would lose money in a debt reduction settlement, it’s a small amount compared to how much they would lose if you file for bankruptcy. They will get more from settling with you than they would from their settlement with the government after you file for bankruptcy.
Keeping these things in mind, you can probably reach a debt reduction settlement. But first, consider carefully if this is the right option for you.
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