When Debt is No Longer Payable

There are lots of reasons for getting into the situation of being unable to pay debts. Whether your situation is the result of unavoidable circumstances (loss of job, illness, etc.) or some poor spending habits, you are now at the point of late and missed payments, and creditor are calling daily. You are suffering and do not know what to do short of bankruptcy. You can smooth out your financial creases, however, by opting for debt settlement.

What is Debt Settlement?

Debt settlement is a process of negotiation an agreement with creditors or collection firms to reduce interest, payments, or total debt amount, so that the debtor can eliminate the debt in a reasonable manner and with payments that are affordable. Debt settlement is usually not an option unless the debtor is 60+ days late on payments, because creditors have no motivation to negotiate until that time.

The Process

If you are 60+ days late, your creditors are calling and perhaps threatening to turn your debt over to a collection firm. You need to do two things immediately:

1. Tell your creditors that you do not know how you will be able to pay the debt and that you may have to declare bankruptcy. This notifies them that payment will not be coming soon, and they will then be more willing to negotiate.
2. Tell your creditors not to call you at work.

Begin the negotiation process by requesting a reduction in interest rates, the elimination of late and over-the-limit fees, and a reduction in total debt amount. Even though a creditor may at first say “no,” stick with it. Do not indicate that you will ever be able to get current and do not promise payment soon. Your creditor needs to remain motivated to settle. Some persistent debtors have been able to get as much as a 50% reduction in debt amount, as well as lower interest rates and thus much lower payments.

If any creditor has transferred or sold your debt to a collector, do the following:

1. Tell the collector not to call you at work.
2. Tell the collector that, from now on, all communication must be in writing. Send a registered letter (return receipt requested) stating that the collector is not to call you at home. Keep copies of all correspondence.
3. Ask for debt validation. This information will give you the name of the original creditor, the amount of the debt, any fees that have been tacked on, and other important information. You will need to attempt to discover whether your debt has been transferred or sold to this collector. If transferred, the collector is working on a percentage of whatever he can collect. If sold, the collector has bought this debt for pennies on the dollar, and this is very common today. You are in a great negotiating position if the debt has been purchased, and you should begin negotiations at 35% of the original debt, with all additional interest cut out.

Does This All Sound Difficult?

It is difficult. Debt settlement negotiations require lots of time, the stamina to remain tough and persistent, and some real skill in negotiation. If you don’t think you have the stomach for all of this, contact a debt settlement professional who has the contacts, the negotiating skills and the time to complete the process for you. Select one that is reputable, able to provide references, and whose fees are the lowest you can find. As well, this professional should be providing budget and credit counseling so that your new start involves changing the spending behaviors that got you there in the first place.