Debt settlement strategies can help you work with creditors to settle your bills and get out of debt quickly.
Before beginning debt settlement negotiations you must understand the difference between secured and unsecured debt and how to settle your bills.
Debts that are Good Candidates for Settlement
Unsecured debt includes (but is not necessarily limited to) the following:
- major credit cards
- department store credit cards
- medical bills
- personal loans
- gas/fuel credit cards
- student loans
Debts that are not Good Candidates for Settlement
Secured debt is any loan that is secured by property and can include:
- home equity loan
- car loan
- loans for recreational vehicles such as boats or RVs
With a secured loan, the property itself is considered an asset or equity for the loan should you fail to make payments. These debts cannot be negotiated into a debt settlement agreement since the creditor will consider the property as the settlement. In this case, the property will likely be repossessed or foreclosed.
Lisa took a hands on approach to getting her debts paid:
I had about a dozen bills, in which half were medical, that had been turned into collections, and therefore, reflected negatively on my credit report.
After receiving a tax refund of $5,000, I decided the first and foremost item on my agenda had to be fixing my credit. I went to a website and paid for a copy of my credit report. I then went through each collector, and called each and every one of them individually.
When I called, I simply told them I wanted to make a payment on my outstanding balance. They then began to barter on certain percentages that would be forgiven if I was able to make a payment right now.
I continued to ask to make a small payment towards the bill, until they finally reduced the amount owed by 60%-70%. This was the case in almost every case. I received a significant discount on every one of the bills, and in return had also completely cleaned my credit report while only paying a small fraction of what was actually owed.
With an unsecured debt, no equity is being put forth to ‘secure’ the loan or to act as a promise of repayment. This is why these types of loans are usually only given to people who have a good credit history. Creditors are more willing to negotiate a favorable settlement for unsecured debts because they know it may be their best option for recovering any of the outstanding balance.
When trying to create a debt settlement strategy, keep in mind that failure to reconcile or redeem a bounced check can be criminally prosecuted. Consequently, these debts should be dealt with first, even if it means you cannot take the time to negotiate a reduction of payment. While a poor credit rating can be repaired, a criminal record will stay with you forever.
When will a creditor settle with you?
1. A creditor will settle with you if they feel that it is in their best interest to do so. If they believe that bankruptcy could be a possibility, they will probably be willing to negotiate a settlement for a reduced balance. After all, something is usually better than nothing.
2. A creditor will also be open to negotiation if they believe that you do not possess very many valuable assets. A lawsuit is always an option, but they cannot be paid money that does not exist. If you do not have many assets to sell, then settlement may be the creditors best option.
If you are facing financial difficulty, but you have always somehow managed to pay your bills on time, you will not likely be able to negotiate a good debt settlement agreement. Creditors will not typically agree to settle if they are still getting their money. Although they may be doubtful, it is always a good idea to contact creditors and inform them that should your current situation continue, you will probably not be able to keep paying them. This may be enough to encourage them to work with you. If not, you can always contact them again once your account is in arrears.
Debt negotiation and settlement can be time consuming and intimidating. If you are uncertain about your ability to deal with the situation, or are concerned about getting the best deal possible, then you may want to enlist the help of a debt settlement specialist. Debt settlement specialists are experts in their field and will work on your behalf to reach a favorable agreement.
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