6 Steps for Ensuring a Successful Debt Settlement

When you are trying to repair your credit and find workable solutions to resolving debt issues, one of the options available to consumers is debt settlement. When you settle debts in this manner, you are agreeing to pay your creditors less money than you owe in outstanding balances.

Debt settlement can be a tricky business and there are many agencies offering to do the negotiations for you – often at a high cost with no guarantee of results. You can negotiate your own debt settlement without the added expense of fees but you have to know what you are doing in order to come through a debt settlement successfully.

Here are 6 steps for working through a debt settlement with creditors:

1. Get Counseling for Your Credit

Licensed credit counselors can help you figure out which action to take to get out from under the burden of big debts using methods that will cause the less possible damage to your credit score and your financial stability. For some, debt settlement is not a good option and there are other ways to consolidate and pay off debts. For those who can use debt settlement to resolve their situation, a counselor can help you see where you stand first so you can be more efficient with your creditor negotiations.

2. Make the First Contact Fast

If you wait too long to do something about past due debts, it is likely your creditors will run out of patience first and file your account as a charge-off. This is typical in accounts going over 6 months past due and creditors may not want to bother with you once the account has been written off.  Most people know in advance they can not meet their payment obligations to creditors so at the first sign of concern, get on the phone and make a payment arrangement plan. If you are already behind, again you need to contact the creditor as soon as you can before they pursue further action with negative consequences.

3. Lay Out Your Finances

As soon as you know your creditor is willing to work with you, you need to formulate a payment plan based on your budget. Gather your bills and your income statements and see where there is room to allocate cash towards the debt settlement payoff. Many creditors will also want proof of your financial hardship before agreeing to work with you so organize the information in a presentable form. Creditors can be agreeable to helping customers out but only if they are certain no one is pulling a fast one on the company.

4. Don’t Inflate Your Abilities

It would be nice to think you could afford hundreds of extra dollars a month to settle your debts but if you realistically could have done that, you wouldn’t be in the position you are. It is essential to review your finances and only promise to pay what you can truly afford. Many people make the mistake of agreeing to an amount they can only afford for a short period of time and then wind up defaulting on the rest of the payback agreement.

5. Remember the Cons

The pros to a debt settlement are you are working to downsize your debt burdens and can do so in a reasonable period of time. The cons to a debt settlement are the realities of what occurs due to the settlement. For instance, if you have been forgiven of debts over $600, you are responsible for paying taxes on the amount. Additionally, settling debts for less than you owe leaves a black mark on your credit score and history report, making it harder for you to secure financing and improve your credit score over the coming years.

6. Get It In Writing and Follow Up

Whatever agreement you and your creditor come to should be outlined in written form. A confirmation of the agreement will protect both the creditor and the consumer should either party default on the agreement. After receiving the confirmation, make sure you make the payments as agreed. When the final payment is made, follow back up with the credit for confirmation the agreement has been satisfied. Request an additional confirmation about the account status and keep following up until you get one.

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