Settling Debt That Is Less Than $10,000 – DIY

In the debt settlement industry most companies will not work with you unless your total debt exceeds $10,000. This does not include any debt owed on a vehicle or property.

Unfortunately this leaves a lot of individuals with debt problems without professional representation. Which ultimately can lead to an individual not doing anything about their debt and just trying to ignore the hassles that come along with it.

It’s not too difficult for a consumer to do the research and then take the same steps and measures that a professional would. The following is a basic outline of how one should go about trying to reduce the amount that is owed and clearing the debt.

The first step is to obtain your credit report. AnnualCreditReport.com will provide you, free of charge one report from each of the three credit bureaus. Equifax, Experian and Transunion. These reports will give you detailed information regarding any past due debt that is reported on your credit history. However these reports do not include your credit scores. If you’re interested in obtaining reports with your credit score, we suggest you go to CreditReport.com.

Once you have these records you should review them and compare them to your own to see if there are any discrepancies. One of the easiest ways to eliminate debt is to find any erroneous claims, dispute them with proper documentation and then submit it to the credit reporting agencies.

When you have an accurate list of companies that you have a debt with you can now begin the process of contacting them to negotiate the amount of debt that is owed. Not all companies will have the ability to negotiate directly with consumers. In many cases (especially when the debt is old) the debt will have been turned over or sold to a collection agency. It’s the agencies job to essentially harass you until you decide to pay off the debt.

In the case that you are not able to deal with the company you have the debt with, ask them for the contact information of the company that the debt was turned over to.

You now have to negotiate directly with the collection agency in order to pay off the debt and have it removed from your credit report.

One important thing to note is that the older your debt is the more willing the collection agency will be to take less for it. For example if your debt was four years old and you owed $3,000 you might want to try offering 20% or 30% for it. This won’t always work and some creditors and companies can be more difficult to work with than others.

Utility companies are notorious for basically stonewalling anyone attempting to reduce a debt that’s owed. Be prepared to pay the full amount due if you’re trying to clear up a debt that’s owed to a utility.

One advantage that consumers with less than $10,000 in debt have over someone with a higher amount (aside from having less debt) is that companies may be less likely to sue those persons in court due to the costs associated with doing so. So in many cases collection agencies and companies who are owed monies are happy to recover just about anything if it’s a very old debt. Remember be aggressive with these companies, you’re contacting them. If you offer a 60% reduction and they counter with a 10% reduction, walk away. Let them think it over for a week or a few months. If you contact a collection agency and the representative you speak with initially isn’t authorized to make any reduction to the debt owed then speak with someone who is. You might have to put some real effort into reducing the amount of debt owed. Just remember what your goal is, financial freedom and the ability to answer your phone without worrying about who is on the other line.

Another key factor in determining how much of a reduction you can negotiate for depends on the statute of limitations in your state. If the debt owed is five years old and the statute in your state is three years, then the company who you have the debt with has no ability to bring you to court to try to recover the funds. It’s in your best interest to know what the laws are in your state before you jump into a negotiation with a creditor. You can find a list of states and the statutes here.

In the event that a debt that is on your report is fairly new there are a few things to keep in mind. Most of the time companies will not begin the settlement process unless the debt is 120 days old and has been charged off. On average recent charge off’s are not likely to be settled for less than 60% of its original value. The debt might just be bounced around from agency to agency. Again remember the older the debt the less likely it is to be “deemed collectable”.  If you can negotiate a new debt down to 60% or 70% of what it was originally you’re doing well.

Vehicle repossession debt is become more and more common. The way that it works is simple. If you buy a car for $30,000 and make $8,000 worth of payments and then the car is repossessed and sold for $15,000 then there’s still a “deficiency balance” of $7,000.

These types of debts can usually be settled for around 30% to 50% of the deficiency balance, sometimes as little as 10-15%.

If you come to an agreement with a creditor and you want to settle a debt there are two very important things that you’ll need before you do. First of all any offer or financial agreement needs to be put into writing and provided to you by the creditor. Never make any kind of a payment based on a conversation that you had on the phone. Even if you contacted the creditor or collection agency and have spoken with a supervisor and the call is being recorded, do not make a payment. Any company that is legitimate and serious will make the extra effort to put the settlement into writing and then send it to you via fax, email or traditional mail.

The next most critical thing you absolutely must have in order to pay off a negotiated debt is the money to do so. All of this is pointless unless you actually have the funds to make it happen. Some collection agencies and companies will allow you to make payments opposed to just a lump sum payment. It’s more advisable for you to pay off the debt all at once. It ensures that the debt is actually getting paid off and also gives you an advantage when negotiating your settlement.

Once you have accomplished your goal and paid off your debts it’s very important that your credit report is updated to reflect your payment. If you discover your credit report is not reflecting payments, then you must copies of the settlement documents to all three credit bureaus. This would also be a very good time to sign up for a credit monitoring service to make sure you’re aware of everything that shows up in your report.

So you might be asking yourself, “Why doesn’t everyone just settle their debt on their own?” Well when your debt begins to exceed $10,000 you begin to become a bigger and more lucrative target for the debt recovery industry. On average only about 15% of individuals who have serious debt end up in litigation. Additionally when the dollar amounts of the debt go up, the more difficult it becomes to reduce the amount owed.

Negotiating a settlement for an $8,000 debt is a completely different experience than negotiating for an $80,000 debt. Additionally aside from negotiating the amounts owed on behalf of their clients, debt settlement services expedite the process and also consolidate the debt into one monthly payment. Imagine negotiating fifteen different debts and then managing the payment schedule for those debts. While it is possible to negotiate a debt on your own, the more you owe the harder is get settlement done. If you owe more than $10,000 in unsecured debt, you need representation. Just like with the law, you can represent yourself, however there is an old saying, “he who represents himself, has a fool for a client” With debt over $10,000 that saying definitely applies.      

A settlement agency may provide “cease communication letters” to help stop harassing collection phone calls.

Hopefully this article will be of help to anyone who is looking to clean up their credit and improve their quality of life. Be sure to check back in soon. We’ll be publishing a guide to dealing with debt that is associated with IRS judgments, avoiding debt while attending college and how to improve your credit score once it’s been severely damaged by debt.

This information is provided as a courtesy of  SettleDebtNow.com. SettleDebtNow.com is one of the largest debt settlement companies in the nation. We have over 35,000 clients and have over 1 billion dollars under management. We are members of the Better Business Bureau and TASC - The Association of Settlement Companies.