Symptoms of the Crisis

You go to work everyday and get a regular paycheck. You pay your rent, utilities and buy groceries and gas. You pay your insurance on time, and you try to keep the essentials taken care of. But there are all of those additional credit card and revolving debt payments that have to be made as well. Then there is a car repair or an illness requiring time off work; or there is holiday shopping that you have to charge because the cash is not available. All of a sudden you have reached the point of not being able to pay your credit card and revolving debt, not even making the minimum payments. It’s a crisis, and you have no way out. Debt settlement is emergency first aid to your financial crisis, and you need to begin the process by educating yourself in it.

Purpose of Debt Settlement

Debt settlement is a negotiated agreement with creditors to achieve a more beneficial position. Usually, this better position involves lowered interest rates, removal of late and over-the-limit charges, and a reduction in the total debt amount.

Debt settlement is for those of us who are significantly behind in our payments. Usually, a debtor must be 60+ days in arrears, and the creditors are calling daily. You are either ignoring the calls or trying to put them off with promises to pay as soon as possible. Stop this cycle immediately. Tell your creditors that you are not able to pay them, that you do not know when you will be able to get current, and that you might have to declare bankruptcy.

Dealing with you Creditors

Tell your creditors that they are not to call you at work. You do not need the embarrassment or the hassle of these calls. Begin the process of negotiation by asking for reduction or elimination of any further interest on the debt, a lower payment, and the elimination of fees that have been added to your debt balance. Next, ask the creditor to reduce the total debt amount. The later you are and the more your creditor believes he may not get anything, the more willing he is to negotiate. If you receive a “no” at first, remain persistent. Say that you will just have to declare bankruptcy. Motivate the creditor! Some creditors have reduced debt by as much as 50%, so keep at it.

If the debt has been turned over to a collector, your process will be a bit different. While you can come to agreement with a creditor by telephone (your new debt amount and payment will appear on your next statement), the collector works differently. Tell the collector not to call you at work. Send the collector a registered letter, stating that all communication must be in writing from now on. Keep copies of all correspondence with each collector. Ask for debt validation to determine what the original debt amount is, the name of the original creditor, the amount of fees and additional interest that may have been added, and, more important, whether the debt has been transferred or sold to the collector. If the collector has purchased your debt, he did so for pennies on the dollar, and you can begin negotiations at 35% with no additional interest and new very low payments.

This process can be daunting and requires patience, persistence, and the ability to remain firm. If you do not have the time to give, moreover, the process can completely break down and you will have to begin again. Many people choose to use a settlement professional who does this for a living and can usually get a beneficial settlement faster. There are fees involved, but they may be worth it and are usually rolled into you new single lower payment.