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How To Negotiate Your Own Debt Settlement

How To Negotiate Your Own Debt SettlementNegotiating your own debt settlement is a bit frustrating and intimidating but you need to know that it is possible. If you are turned off by the service fee that debt relief companies charge, you should know that people have negotiated their own debts successfully. The service fee is usually a percentage of the debt you are trying to settle. That means the more debt you have, the bigger fee you will be charged with. You can save on that. Also, you can stay away from scammers who are pretending to be legitimate debt settlement companies.

Know your opponent in debt settlement

If you are decided to settle your own debts, you need to begin by knowing who you are dealing with. Creditors can be very tricky in debt settlement because they want to get the most out of you. The interest amount and other penalty charges on your debt is how they earn. The more interest you pay over your principal debt, the more profit for them. That is why they do not like debt settlement because it aims for debt reduction.

It is advisable that you visit the FTC or Federal Trade Commission website to know what they have to say about debt collection. It will help educate you and anticipate the moves of your creditors – especially when debt collectors enter the picture.

To help you come up with your negotiating tactics, let us expound on how your creditors view debt settlement.

  • Creditors view debt settlement as a way to decrease their profit. You will negotiate with them to allow you to pay only a portion of what you owe and have the rest forgiven. You will do this by convincing them that you are in a financial crisis. The whole idea means less profits for them and that is not something that they like. You can just imagine how they feel about bankruptcy.

  • Creditors are not out to get your personally. It is simply a business transaction for them. They are getting what is due them and it is your responsibility to pay back what you owe. Unfortunately, your current situation cannot afford that and you are offering a solution that will pay them back but under your terms. You have to understand this to help you battle the intimidation that most consumers feel towards their creditors. You need to get rid of this so you can confidently communicate with them and sincerely agree on a solution that will benefit you both.

  • Creditors want you pay them back but that is not everything they do. There is a whole other level of process and priorities that goes on behind the scene. Getting you to pay your dues is just one of them. For instance, one of their priorities is the investment of their shareholders. Any default on payments will lower the stock value of the company as a whole. Lower stock means a decrease in profits. If a lot of people are defaulting at the same time, you can expect that they will be very desperate to get any amount from you just to cover their losses. That will make them more agreeable to a settlement. But if you are alone and other people are not defaulting, they can drag on the negotiation because they can afford to gamble losing your payments.

  • Creditors dislike bankruptcy because credit card debt is usually the first to be discharged. That will mean they get nothing from you and once the court decides, they cannot take any legal action against you. This is why you are encouraged to use bankruptcy threats throughout your negotiation.

The debt settlement process and tips

Now that you know where your opponent stands in all of this, your next step is to know the whole process. Here is a step by step account of what you have to do.

  1. Stop sending payments to your creditors and instead, send it to a secure account where you will grow your settlement fund.

  2. Wait until the creditors realize that you have stopped paying them off. In a month or two, expect the calls to start.

  3. Talk to the creditor and explain how you are in a financial crisis and you cannot afford to pay off your usual payments.

  4. Expect that the calls will worsen over time, just stick to your story while continually increasing your settlement fund. Mention bankruptcy every now and then.

  5. Start mentioning debt settlement around 4-6 months after you first defaulted on your payments.

  6. Create a debt settlement plan that you can propose to your creditor/collector.

  7. Begin haggling with the creditor/collector to allow you to pay a portion of your debts. Start with a figure that is lower than the settlement fund that you raised so you have room to negotiate.

  8. Keep a record of everything that you have communicated and agreed on. Put everything in writing, send it to the creditor/collector and include a return receipt.

  9. Upon agreeing on a settlement amount, make sure you have a signed document that proves the creditor/collector will forgive your balance once you have completed the agreed payment.

  10. Pay off the creditor and close the account.

It is important that you also educate yourself further by going back to the FTC site to know your rights as consumer. There are various laws that will help you like the the Fair Debt Collection Practices Act or FDCPA. This will help you identify when the creditor is being abusive or threatening. You can also file a complaint through this site.

Here are more tips that you can look into to help you arrive at a successful debt settlement:

  • Never agree on an amount you cannot afford.

  • Be consistent with your financial crisis story.

  • Be patient and never rush to get an agreement.

  • Always document your communication.

  • Check if you are negotiating with the people who have the authority to decide on your account.

  • Do not take it personally, be polite and always keep a cool head.

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