Are you in the unfortunate situation of trying to figure out how to negotiate with debt collectors and creditors? It can be a frightening and frustrating experience. You might be surprised by how many people are in the same boat.
The national average debt for an American household is $53,850. Nationally, 35 percent of that debt has gone to collections. This means that the debt is at least 180 days past due. (source) With over one-third of American households carrying debt that is in collections, the need for debt relief is increasing.
What can you do to find some relief? Where can you turn when debt has become too much for you to handle?
What types of debt can be settled by negotiation with your creditors?
Debt settlement is a process by which you negotiate with your creditors to pay less than the full amount you owe. The reason for negotiating with creditors is not merely to get a better deal or to avoid paying your debt. Rather, negotiating with your creditors or with a debt collections agency occurs when you are unable to find a realistic way to pay the full amount you owe.
In a case like this, your creditors may agree to accept less than the total amount owed if it means they will be able to collect at least a part of the debt owed. The idea is that something is better than nothing.
Debt settlement covers unsecured debt. Common types of unsecured debt are:
- Credit card debt
- Department store cards
- Telephone, electric, and other utility bills
- Medical bills
- Unsecured personal loans
- Back rent
Unlike your mortgage or your car loan, unsecured debts don’t have assets your creditor could take instead of payment for your debt.
It is important to note that negotiating a debt settlement with your creditors will affect your credit negatively. Accounts settled in this manner are usually reported to credit bureaus and stay on your credit report for up to seven years.
Can you negotiate directly with your creditors?
No law prohibits you from negotiating directly with your creditors to try to settle your debt. It is also true that there is no law requiring a lender to agree to a settlement.
You do have some rights where debt collection is concerned. For instance, debt collectors are not allowed to call you before 8:00 am or after 9:00 pm unless you expressly permit it. Furthermore, debt collectors cannot contact you at work if they are told verbally or in writing that you are not allowed to get calls at work. Federal and state laws prohibit debt collectors from harassing, threatening, or deceiving you.
This does not mean, however, that a debt collector has to be friendly or go out of his or her way to negotiate a settlement with you, which brings us to the next question.
Should you negotiate directly with your creditors?
Negotiating with your creditors can be a lengthy, emotionally draining experience. Let’s face it. Your creditors are in no hurry to agree to take less than what they are owed. Furthermore, they have no incentive to make the negotiation process pleasant or comfortable for you.
Before making the decision to try to negotiate a settlement on your own, think carefully about how much time, energy, and effort you want to spend on the process. Negotiating a debt settlement is not as easy as picking up the phone and making one call. It involves much more.
What are some tips to help you negotiate your debt settlement?
If you do choose to go it alone, there are some actions you can take to help ease the process. Here are some of them:
Before contacting your creditors, sit down and carefully assess your financial situation. Take into account your income as well as everything you owe. Make a reasonable budget based on what you can afford to pay toward your debt.
Understand all your rights, as well as the rights of your creditors.
Find out exactly with whom you need to negotiate. If your creditor is a large financial institution, for instance, you may have to go through several intermediaries before you find the person with the power to make a settlement agreement with you.
After careful consideration, make what you believe to be a reasonable offer. You do not want to offer more than you can give. However, you also do not want to offer so little that your creditor rejects your offer without giving it consideration.
Accept the fact that you will likely have to go through a lengthy process of making an offer and then to receive a counter offer from your creditor. If you owe more than one creditor, you will have to repeat this process with each creditor as many times as needed until you settle all your accounts.
Do not agree to make any payment before you have a written and signed settlement agreement in your hand. If there is any portion you do not understand, do not sign it without consulting legal counsel.
When should you hire a debt settlement firm to negotiate with your creditors?
For some consumers, the mere thought of trying to negotiate a debt settlement with creditors sounds like a nightmare. Here are some signs that you would likely benefit from hiring a debt settlement company.
- You do not have the time and energy to devote to negotiating with creditors one by one.
- The stress of negotiating with creditors is overwhelming.
- You feel too embarrassed to be assertive in asking for consideration of your proposal.
- Emotions could get in the way and compromise your ability to be an effective negotiator.
- It’s possible you will lose your temper and make matters worse with your creditors.
- You do not understand your rights or the rights of your creditors.
Any or all of these signs are an indication that a debt settlement firm may be the best solution for you. Debt settlement companies bring several advantages to the table.
- Debt settlement companies are not emotionally invested in the situation. Therefore, they can calmly negotiate on your behalf.
- They are experts in the art of negotiation.
- These firms work regularly with creditors to negotiate debt, and they often have good relationships with creditors.
- They can help you assess your situation carefully, and they can explain your options clearly.
- In some cases, a debt settlement company may be able to help you reach a settlement agreement that cuts up to 30 to 50 percent off your debt.
What strategies will debt settlement companies use to negotiate with your creditors?
When you hire a debt settlement company, you will enter into a debt settlement program. Such programs follow a standard four-step procedure.
First, your debt settlement company will ask that you stop making payments on all your unsecured debt. This is something to consider carefully. Once you stop paying these bills, your creditors may initiate collections procedures which will hurt your credit.
Rather than paying your creditors, you will be asked to put as much money as possible into a bank account that will be set up in your name. Debt settlement companies use these funds to negotiate a lump-sum payment with creditors.
Once there is sufficient money in the account, your debt settlement company will start the negotiation process. The company will keep you informed about any settlement offers, and you consult with you before any offers are made or accepted.
Once you reach an agreement, your debt settlement company will pay your creditors and your creditors will close the settled accounts.
The timeframe in which all this happens varies according to how quickly you can save sufficient money and how quickly your creditors agree to a settlement offer. Debt settlement programs typically take 2 to 4 years to complete.
Because debt settlement has an adverse effect on your credit score, you should only consider it as an option if you are not able to make other arrangements to pay your debt in full. Additionally, you must take care to find a reputable debt settlement company to protect your interests. If you need to talk to someone about a debt settlement right now, do not put it off another day. Get a free debt settlement consultation today and begin your journey to becoming debt-free.