Do It Yourself Debt Settlement

You might decide to settle your own debts instead of hiring a debt settlement company because you want to save money on settlement fees. Or, perhaps you’ve heard about scams rampant in the debt settlement industry and want to avoid being taken advantage of. Some people decide to settle their own debts so they have control of the process from start to finish. There are lots of good reasons to settle your own debts.

Getting Started
When you decide you’re going to settle your own debts, you stop making monthly payments on your debt. Instead, each month you’ll deposit your regular monthly debt payments into a separate checking account whose sole purpose it to hold your settlement funds until you’re ready to pay a settlement. You might open this checking account at an entirely different bank if the credit cards or loans you want to settle are at the bank of your primary checking account.

Creditors routinely agree to settlements between 40% and 70% on balances that are 90 days or more past due. The account must be past due for the creditor to deem it risky enough to take a settlement on. If the creditor thinks they can get the full balance from you, they won’t agree to a settlement.

When to Make a Settlement Offer
Once you’ve saved up enough money to pay a settlement (about 50% of the current balance due) and you have an account that’s more than 90 days past due, you can make a settlement offer. If this is the first time you’ve mentioned settlement to the creditor, you might briefly mention it as a possibility. For example, you might say, “I’m having trouble getting caught up on my payments. In fact, I’m not sure if I’ll ever be able to pay this account in full. If I could come up with the money, would you be interested in taking a settlement on this account.”

When you bring up settlement with the creditor, be prepared to offer a dollar amount to settle the account. So, if you owe $10,000 and you want to settle for 50%, offer $5,000. If the creditor refuses or asks you to pay an amount you’re not prepared to pay, politely end the call and repeat the process in another month or so.

Settling Your Account
When a creditor agrees to a settlement offer, there’s one more step that has to happen before you make payment. You need to get a settlement agreement on company letterhead. The settlement agreement should include the date of the offer, amount of the settlement, date the settlement must be received, and a note saying the settlement will satisfy the account in full. You’ll get the settlement letter faster if you have access to a fax machine. That way you can sign it, fax it back, and make the settlement payment.

Many creditors will take the settlement payment over the phone if you give your checking account and routing number. The creditor may also accept a cashier’s check or money order for payment. Make sure you confirm the payment method.

Frank Collins is a seasoned writer with strong background in both personal and business finance. You can read more of his articles about debt relief options, credit counseling and related services at the debt settlemmient blog.