There may come a time in your debt journey when you realize you’re running out of options that it is unlikely you’ll ever be able to pay your balances in full.
How to Negotiate Your Own Debt Settlement
This is the point when many borrowers explore debt settlement in an effort to avoid filing for bankruptcy if they don’t have to.
Another way to think about debt settlement is as a negotiation between you and your creditors. Borrowers on the brink of settlement generally have already been missing payments, which means lenders view them as potential default risks.
Wanting to avoid default, creditors may be open to accepting some percentage of the original balance and calling it a day — ultimately allowing the creditor or collector to get at least some payment and the borrower to satisfy their debts without paying the entire amount.
Some consumers go the route of entering into a debt settlement program, which will walk clients through each step and handle those negotiations for a fee. Others decide to try to communicate with lenders on their own.
Here are tips on handling those negotiations on your own if you decide to go that route.
Tips for Negotiating Your Own Debt Settlement
Preparation is key when it comes to navigating the do-it-yourself debt settlement process successfully. Before you even consider picking up the phone, be prepared to do some research and budgeting.
Step 1: Determine what you can pay
The last thing you want to do is reach a payment agreement with your creditor then realize it’s completely unrealistic for your budget, even if it is less than you currently owe. This means you need to have a solid idea of what your budget can support.
Since most people don’t have a large sum of cash on hand already, they typically will have to set aside a certain amount per month in an effort to save up to a target goal.
According to one expert for NerdWallet, you may be able to settle your debts for 40 to 50 percent of the current balance.
Using this percentage as a minimum threshold, then you can calculate at least how much you’ll need to save up and how long it will take before you can make an offer.
Step 2: Research your lender(s)
Lenders have differing policies on settlement, so knowing yours ahead of time can help you know what to expect.
One way to find out more about how various creditors tend to handle settlements is to look at what other consumers have written online.
One possible advantage of going with a debt settlement program rather than a DIY settlement is the relationships these companies may have built up with certain creditors already.
The answer to, “Which company is the leader in debt settlement?” may very well be whichever one has successfully negotiated with your creditor.
Again, look online to see what other debt settlement candidates have said about their experiences negotiating with certain companies, either on their own or through a program.
Step 3: Get a verbal and written agreement
Now it’s actually time to pick up the phone and negotiate. Always remain polite and explain the financial hardships that have made it difficult to keep up with your bills.
Make an initial offer and expect your creditors to counteroffer. And remember: It’s not a given that they’ll agree.
If you are able to reach a verbal offer, get it in writing immediately — including all the terms and conditions on both sides.
This includes not only the new amount you’ll owe but also how and when the creditor will report the payment to your creditor to credit reporting bureaus.
Then be sure to fulfill your end of the deal according to the negotiated terms. If you have multiple outstanding debts, you’ll need to repeat this process for each one.