Tips for Negotiating Debt Settlement
In understanding how debt settlement works, it is important to know what categories of debt there are. For this particular subject there are two types of debt to consider i.e. secured and unsecured debts. The former involves the attachment of some property, e.g. a house or even a car as the collateral. Should you (the debtor) fail to repay a loan taken from a financial institution (the creditor), it is this property that will be repossessed from you as settlement. Unsecured debts on the other hand don’t involve the attachment of collateral – they are simply based on the fact that a debtor has good credit. As such, a creditor does not have a guarantee that the funds you have borrowed will be paid back. This is why creditors cede to settlement negotiations – if only to get a fraction of their funds back. Techniques for successful debt negotiation will be covered later in the article.
While lots of people have managed to personally negotiate debt settlements successfully, it has to be said that the process comes with its own positive and negative consequences. In view of this you need to understand the intricacies of the process before you get started.
First of all you have to realize that inasmuch as you may be informed on the subject of debt settlement, it is mostly the people you deal with who’ll determine your success. A difficult person may frustrate your efforts at settling. You must be ready to persist – the process sometimes extends for multiple months, bearing in mind that your creditor will not readily agree to lose lots of money willingly. There is a need to be versatile in your approach to negotiation settlements when dealing with different creditors. Individual creditors work in different ways and trying to apply similar approaches may work against you, perhaps even legally.
Creditors will sometimes threaten you with litigation. The general rule is that this will usually be a bluff – you can never be too sure though. Make a careful investigation of the creditor, particular looking into their past performances, to get a clue of the litigation threat’s legitimacy. Another important prerequisite is your ability to differentiate between good and bad settlement offers and subsequently when to make an immediate acceptance or to hold out for a better offer. You also must know when it is best to temporarily take no action at all in the course of negotiation. This action may go either way; it may or may not deny you of a favorable settlement opportunity or even a possible lawsuit. Some of the other considerations that you must bear in mind include, determining whether it would be prudent to make direct negotiations with creditors or to deal with their appointed collection agencies, what to do if another firm buys your debt, what to do if an account you own is forwarded to a law firm, and what is required of you when judgments and liens require settling. Debt settlement has its consequences even when it is successful. One of the major realizations you have to acknowledge is that your credit score will severely be dented.
For people who choose to proceed with debt settlement negotiations the following are some tips that will come in handy during the process:
1Make Use of Your Natural Advantage During Settlement
Realize that the creditor is the one who stands to lose. As such, you should not buckle under pressure when they reject your settlement requests; keep calm always with an aim to ensuring that you get the best deal possible. Have all your negotiation proceedings in writing to ensure you have proper records of the same.
2Know What Amount to Offer Collection Agencies
The age and type of account in question are what determine the amounts that firms give for bad debts. Generally, the amounts are 6-7 cents per dollar for recently charged off debts, 1.5-2 cents per dollar for slightly older accounts which have been referred to one or two collection agencies, and a penny or less for accounts several years’ old or out-of-statute debts. Bearing in mind that it is the collection agencies who’ll get the money you are offering, it is advisable to begin your negotiations at a 25% rate or less.
3If Contacted by Multiple Agencies for the Same Debt...
This usually means that your creditor and the first collection agency have ceded defeat and allowed another collection agency to pursue the debt. This new firm has paid less for the same debt and as such they will most likely agree to a cheaper compromise than the first two parties.
4Let the Creditors do the Talking
You will get the most affordable settlement when the creditor becomes most desperate – never be in a hurry to settle. To get the most out of the deal, you must turn down the first and even second offers, ensuring that they are the ones doing the pushing and not you. In the same breathe, you will be sure to get a better deal if you take your time in negotiation. With the elapsing of time, creditors tend to sideline some negotiations and this definitely betters your chances of getting more suitable settlement deals.
5Don’t be Fooled by Extra Interests and Penalties Charged
These charges are usually fictitious and typically illegal since there are usury laws in every state determining the maximum interests that can be charged on these monies. Collection agencies will gladly receive the original debt owed without as much as raising a question about the penalties and interests added on top.
6It is Vital to Keep Good Records
All the terms of your debt settlement negotiations should be made in writing, never verbally. It is most preferable to negotiate using letters, and these should always be sent through registered mail. Be careful to always ask for the receipt of payment.
7When Dealing With Creditors and Collection Agencies by Phone…
Ensure that all telephone correspondences are followed up with letters in the manner described above. Also ensure that you get the details of the particular person you dealt with as well as the firm’s name, physical address, direct line, and fax number as well.
Written by Samuel Muriithi
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