Creditors, seeing missed payments stacking up, may be open to a settlement because partial payment is better than no payment at all. There are better ways to handle your debt than DIY debt settlement.
If you decide to proceed, handling debt settlement negotiations yourself may be a better option than using a debt settlement company , which can be expensive and ineffective. Time and cost are the main distinctions between debt settlement through a company and doing it yourself. You may be able to get faster results with DIY debt settlement.
While completing a plan through a company can take two and a half years or more, you may be able to settle your debts on your own within six months of going delinquent, according to debt settlement coach Michael Bovee.
Debt settlement companies also can have inconsistent success rates. The Consumer Financial Protection Bureau has logged more than complaints against debt settlement companies since Among the most common issues were fraud and excessive fees. The Florida-based company agreed to effectively shut down its operations, according to a court order.
If you decide to negotiate with a creditor on your own, navigating the process takes some savvy and determination. Answer these questions to decide whether DIY debt settlement is a good option:. Worried about money? How do full and final settlement offers work? How do you make a settlement offer?
You can make settlement offers to all of your debts, sharing out the lump sum fairly among them. Firstly you need to work out how much to offer your creditors and then send your offer to them in writing.
Always ask your creditors to confirm they accept your offer in writing before you send them any money. Keep any letters your creditors send to you about the settlement offer just in case you need to refer to them again in the future.
You also could: negotiate directly with your credit card company, work with a credit counselor, or consider bankruptcy. Talk with your credit card company , even if you have been turned down before. Rather than pay a company to talk to your creditor on your behalf, remember that you can do it yourself for free. You can find the telephone number on your card or your statement. Be persistent and polite. Keep good records of your debts, so that when you do reach the credit card company, you can explain your situation.
Your goal is to work out a modified payment plan that reduces your payments to a level you can manage. If you don't pay on your debt for days, your creditor will write your debt off as a loss; your credit score will take a big hit, and you still will owe the debt. Creditors often are willing to negotiate with you even after they write your debt off as a loss.
Contact a credit counselor. Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops.
Their counselors are certified and trained in consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions. Most reputable credit counselors are non-profits and offer services through local offices, online, or on the phone. If possible, find an organization that offers in-person counseling.
Many universities, military bases, credit unions, housing authorities, and branches of the U. Cooperative Extension Service operate non-profit credit counseling programs.
Credit card issuers must include a toll-free number on their statements that gives cardholders information about finding non-profit counseling organizations.
The U. Trustee Program — the organization within the U. Department of Justice that supervises bankruptcy cases and trustees — also maintains a list of government-approved organizations. If a credit counseling organization says it's government-approved, check the U.
Meanwhile, a DIY settlement plan may work, but it can be tough to carry out. Debt settlement, also known as debt negotiation, involves wiping out debt by paying a portion of it in one lump sum. This sum typically is much less than what you originally owed. For the borrower, debt settlement can provide financial relief and put them on the path toward rebuilding their credit.
Furthermore, it may mean the borrower can avoid filing for bankruptcy. Although, according to some experts, filing for bankruptcy may be the better alternative in some cases. Normally, debt settlement involves money you owe to credit card issuers, rather than other types of debt. But you may be able to settle other unsecured debt as well. Debt settlement handled by a debt settlement company differs from taking a DIY approach. Research debt settlement companies. A number of legitimate debt settlement companies operate in the U.
Most states require that they be licensed. Debt settlement companies are supposed to follow industry regulations that are designed to protect consumers and their money. Be cautious. If a debt settlement company promises certain results, proceed carefully. Ask about costs. Review your finances. Debt settlement companies frequently require you to put money into a special savings account for 24 months or longer before the debt is completely settled. These payments go toward the lump-sum settlement of your debt.
In some cases, you may find it hard to keep up with these payments. Therefore, you might give up on the settlement agreement before all or some of your debt is cleared.
Inquire about the timetable. It often takes two to four years to complete the debt settlement process.
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