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Successful Debt Settlement Secrets
The road to successful debt settlement is full of little known tactics which a debtor can use to negotiate the best settlement possible. Get smart!
The Debt Settlement Process
When debt becomes overwhelming, consumers should explore all options for getting relief. Certainly, the most drastic is bankruptcy, either Chapter 13 or Chapter 7, primarily because the action is reported for 10 years on a credit report. As well, any default following a bankruptcy, even a 30-day late payment, ruins chances of getting reasonable interest rates on any future credit. Indeed, mortgage lenders will not even consider a home loan if this is the case.
The next option is to ignore the debt completely and let the creditors turn it over to collection agencies or, worse, sue for the amount owed. If one has not assets and no employment, with no prospects of future employment, this may be an option. The creditor may get a favorable judgment but then has to “find the money.” Finding the money excludes taking life insurance or retirement income, so senior citizens often take this route. For the average working citizen, however, this is not a good option.
The third option is to attempt to settle the debt. Successful debt settlement is a process, and it can be a lengthy and tedious process, not for the faint of heart or the timid. It requires knowledge of the law, knowledge of what can be negotiated, and the use of some tactics of which the average debtor is not aware.
Who Owns the Debt?
This is the first critical question. If the original creditor is still calling you, and you are 60-90 days past due on payments, you should begin negotiations with this creditor right away. Your account has not yet been turned over or sold to a collection company. At this point, you need to open the door for negotiation to whoever has telephoned you. Initially, the creditor will say “no.” Be persistent. You need to inform the creditor that you have no way to pay this entire debt back, that you might have to consider bankruptcy if you cannot get a reduction in the amount.
Creditors are more interested in getting some money than no money, and they are much more willing to negotiate if they feel relatively certain a bankruptcy is imminent. If theirs is the only debt on which you are behind, however, and your credit report indicates you are paying everyone else on time, they will not see the threat of bankruptcy as real, and you will lose the bargaining power of that “chip.” If, however, you are in default on several accounts, you are in a strong position. Settling for 50% of the original debt is usually not an unreasonable expectation. And, if you reach a settlement with the original creditor, it can be verbal, so long as you live up to your end.
The Collection Company
If a collection agency or company is calling you, the original creditor has either contracted with it or has sold the debt. You need to find out immediately which is the case, because this will determine how you proceed in the debt settlement.
If the creditor has contracted with the collection agency, it has agreed to allow the agency to collect as much as possible for a percentage of the amount collected. The agency is thus going to do all it can to collect as much as possible. In this case, the original creditor remains the current creditor. Once a collection agency has called you, tell them verbally that they are not to call you at your place of work at any time. Then, send them a registered letter (return receipt requested), stating that they are not to contact you at home by telephone. You have now set up a process in which everything has to be done in writing. And you will need to keep copies of everything.
Next, request a debt validation. The collector will have to send you copies of your original agreement with the creditor, all billing statements, and include the complete listing of fees and charges that either the creditor or the collector is adding to your debt. This gives you important information as you begin to negotiate the debt, because all of these fees and charges need to go. If you can negotiate down to 50% of the original debt in these circumstances, you have done well. Further, the longer the process goes (and you can lengthen it by continued requests for things in writing), the less they are willing to take.
If the creditor has sold your bad debt to a collector, the process will be different. Certainly, you will reduce communication to writing only as in the above situation. You will also request a debt validation just as above. Study the debt validation carefully. If the original agreement with the original creditor does not state that you agree to pay the creditor “and/or its assigns,” you do not legally owe the collector anything. He has no claim to your debt, because there is no original agreement from you to pay him. The validation should also tell you who now owns the debt – the original creditor or the collection company. If the collection company owns the debt, you can be certain that they bought that debt for pennies on the dollar, and you should begin your negotiations at 25% of the original debt.
In both cases, never tell the creditor or collector that you will be able to pay in the future. They need to believe that you will not be able to pay, or your negotiating position is truly weak. This process is lengthy and time-consuming, and, if you have neither the stamina nor the assertiveness to negotiate from a position of strength, turn the negotiation over to a professional. A fee will be charged for this service, but you get a better result.