5 Debt Settlement Tips: Negotiating Successfully With Creditors

So you have some undesirable debt, do you? Don’t shove your head in the financial sand just yet. Debt settlement could be your answer. In today’s poor economic climate, it is not unheard of for a creditor or collector to make the first move by approaching you with a debt settlement offer. Even though this is tremendous news, there are a few quick tips and tricks can make a sweet deal even sweeter.

Always counter
Whether the creditor or collection agency sends the first correspondence with an offer or you do, always challenge the initial offer. Consumers can successfully settle most debts for 50 to 70 percent of the balance. Start at 70 percent less than the balance and move up from there.

State your alternatives
If bankruptcy is an option for you, it is imperative that you mention this in your correspondence, often. Consider using phrases such as, “Since I cannot afford to pay the full amount of this debt, I propose this solution. If this is not acceptable, I am afraid that I have no choice other than to declare bankruptcy.”

Creditors and collection agencies recognize that, in bankruptcy court, debts are wiped clean, usually starting with the oldest debts first. This puts the collection agency in an “all or nothing scenario”. Essentially, in a bankruptcy, they walk away with out turned pockets. Since collection agencies are in the business of buying bad debt, a bankruptcy equals a wash; that does not make sound business sense–for them. If the collection agency senses a possible bankruptcy on the horizon, it morphs into motivation; often resulting in amended debt settlement arrangements with the most favorable terms.

Check the statute of limitations
Each state has a predetermined number of years that a creditor or collection agency has to try to collect a debt. While this statue holds no bearing on the credit reporting laws, (they can report the debt for 7 years) they cannot legally attempt to recover by suing you on a account that has exceeded the statute of limitations for your state. If they threaten to take legal action on a debt older than the prescribed period, they are in violation of state law, and can help you have the charges erased. Remember to keep all correspondence from creditors and collection agencies.

State your conditions
Having your credit cleared should always be a priority and a precondition for settling any obligation. When sending in debt settlement agreement offers or counter offers to collectors, removing the item from your credit needs to be a clearly stated contingent. Furthermore, the agency needs to return a signed copy, acknowledging acceptance and agreement.

Get everything in writing. No exceptions.
Oral agreements are significant; and in my experience, most collection agencies and creditors will abide by their word when removing negative credit entries after a settlement. However, your case does not need to be the “exception” to the rule. Keep all correspondence from the creditor or collection agency from the initial debt settlement offer up until the receipt of payment and completion of the transaction, just in case.

More from this Contributor:
10 Tips for Living Debt-Free on a $30,000 Salary
Collection Agencies and the Rinse and Repeat Strategy
Stop! Before You Pay that Old Debt, Read This First