Debt settlement is an arrangement that allows you to legally pay down your debts faster, and typically for less than the full amount you owe on the debts. It is legal, and you can arrange a debt settlement arrangement with any of your creditors of unsecured debt. Unsecured debt is debt like credit cards, store charge cards and personal loans that are not backed by any type of real property as collateral, such as a house or car.
Make a Plan
Gather your debts together and assess your financial situation. Pull out copies of your most recent credit card statements, and take stock of the amounts you owe, in addition to the fees you are being charged in interest, late fees and non-payment penalties, if applicable. Prioritize your debts by which ones are costing you the most money every month, and decide to systematically eliminate each one in an appropriate order.
Focus on Recent Accounts
Order a copy of your credit report, and review which of your creditors may be reporting you as late on your payments, or whether any of your debts have been charged off. If you have any credit accounts in collections for more than three years, or if any of your accounts have been written off by the creditor, it is generally not recommended to contact those creditors to arrange settlement. This is because even delinquent debts disappear from your credit report after seven years of nonpayment, notes Liz Weston of MSNMoney. Contacting a creditor after several years of inactivity restarts the clock on that debt.
Prepare a Proposal
Calculate how you much you can pay toward pay on each debt. Whether you are able to make a lump sum payment of 50 percent toward the total balance, or whether you can afford a specific monthly payment, make a note of what you can pay for each debt. You may have to negotiate with the creditor, but it helps to have a place to start.
Call the Creditor
Call the creditor or debt collection agency, and make your settlement offer. You can also send a letter detailing your desired payment arrangement, and request the creditor respond back to you within 30 days. Because they want to be repaid, most creditors are willing to arrange a settlement. You may be asked to pay more than your original offer, but many creditors are glad to receive partial payments rather than nothing at all. Ask for a letter confirming the arrangement, and do not send any settlement payments until you have this letter for your records.
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