How to Negotiate Debt Settlement on Your Own – a Do It Yourself Guide

20.04.2024

When you find yourself in a financial hole, it might seem to you that the only way to get out of it is to hire a debt settlement company. They appear to be just the help you have been looking for because they promise to negotiate with the creditor to settle the debt for less money than you owe. Lenders often agree to the settlement because that way, they can get part of the money instead of having to write off the entire debt.

But hiring a company isn’t the only option. In fact, according to a Forbes source, consumer protection experts say that it carries certain risks. For example, some companies can promise you results that they, in reality, can’t deliver, which leaves you with the same financial problems that you had in the first place.

Fortunately, you can decide not to hire the company and negotiate debts yourself. Debt settlement do-it-yourself can bring much better results than relying on a company.

DIY Debt Settlement Vs. Debt Settlement Companies

The primary difference between the concept of settling the debt yourself and hiring a company is in the amount of time and money you will have to reserve. If you hire the company, you can expect the process to last between three and five years. When you do it yourself, you save the money that you would use to pay the third party. Additionally, it allows you to reach a debt settlement agreement on your terms in a shorter period. However, when you opt for the DIY settlement, you will be totally on your own, so the chances of successful negation depend on your skills only.

Now, whichever option you choose, you need to be prepared to face a tax burden if you reach a debt collection negotiation. For example, if the lender writes off at least $600 of your debt, you will have to pay taxes for that amount.

Apart from that, your credit score will be affected regardless of the type of negotiation. Keep in mind that the settlement will be visible in your credit score for seven years.

How to Negotiate with Creditors for Debt Settlement

It is important to know that debt settlement negotiation on your own isn’t a quick or painless process. It takes plenty of time, determination, and courage to call the lender and discuss the possibility of the writing of some part of the debt.

Before you decide to start this process, it is recommended to consider everything that it entails and see if this is something that might work for you. In most cases, the lenders will accept a settlement for loans that are more than 90 days past overdue. Also, it will be much easier to negotiate credit card debts and unpaid medical bills than student loans, etc. Here are the steps you need to take if negotiating payments yourself.

Learn About the Debt

Before you proceed with other steps, you need to assess your debt. The first question is how much money do you owe. Also, you need to see whether you owe to one or more lenders, who they are, and what their rules are. Answering these questions will be the basis of your payment plan. Then, you also need to think about your payment options. Is it possible to pay back the larger sum at once? Or do you need to pay back in monthly installments?

Research Your Credit

Research about how lenders or, in some cases, debt collectors handle debt settlements. Lenders often have different policies. In most cases, they require that you are at least 90 days late before they consider the negotiation. Some, however, don’t want to negotiate, and you have to wait for them to sell your debt to someone else. Additionally, some lenders ask you to pay a large sum of money at the beginning of the process. The others may accept that you pay the debt in monthly installments. One way to do this research is to look for information online. If you can’t find enough information on the internet, the best you can do is call creditors to find out how they deal with debt settlements.

Save Up Cash

When settling with a debt collector or a creditor, your debt will be reduced but not entirely written off. That means that you will have to pay some money. In that case, it would be good to inform the lender or the debt collector that you have some money aside. That particularly stands for lenders who are looking for lump-sum payments. It is something most lenders will do. There is a possibility, of course, to agree with some to pay back the remaining debt in monthly installments. However, when you calculate all the interest fees and everything, this turns out to be more expensive.

Prepare a Realistic Proposal

Once you complete your research and save some money, it is time to contact the creditor with an offer. For this type of negotiation, it is recommended that you have a clear narrative. There is no need to go into many details. In many cases, creditors agree to accept settling for 40% or 50% of the debt. However, sometimes they can ask for as much as 80%. It all comes down to the type of debt and the creditor you are dealing with. In general, your first offer should be under 40% or 50% so you can have some space to negotiate.

Negotiate With Debt Creditors

After you have prepared the debt settlement proposal letter, contact the creditor. Ideally, you should talk with the manager. But if this is not possible, ask to talk with the “financial relief” department. Be prepared to call several times before you find someone with a sympathetic ear. Start the negotiation with a lowball offer. For example, you should initially propose to settle the debt for 15 % or 20 % of what you owe. The creditors will, of course, insist on a much higher offer – usually, they ask for 80%. But keep in mind this is just the starting point. From this moment, you will start negotiating with credit card companies or other creditors until you reach the middle. Remember that by starting with the low offer, you improve your chances of arriving at an amount that is less than half of your initial debt. Once you agree to a settlement, make sure to have everything put on paper. This will serve as a protection in case of problems arrive at any point.

Alternatives to Debt Settlement

While negotiating credit card debt or other debts settlement is always an option, it is good to inform yourself about the alternatives. For many people, other options, such as debt consolidation loans, present a less risky way to get out of debt. In the case of smaller debts, you can think about taking a payday loan from companies like Loan Solution. They are small short terms loans. Some people also see bankruptcy as the quickest and less painful option.

Bottom Line

DIY debt settlement comes with many advantages compared to working with a professional debt settlement company. For example, you will not have to pay the services of the company and other fees. However, settling debts yourself will certainly consume plenty of your time and energy as you will not be able to reach an agreement immediately.