A sure sign that consumer debt in the United States is a huge problem are the numerous debt settlement firms that have sprouted up post 2008. Legitimate companies negotiate with your creditors on your behalf to lower your debt. The problem is that legitimate companies are few and far between and regulations have been lax, according to the Federal Trade Commission. The good news is that with so many people in over their heads and having difficulty paying their debt, creditors are more willing to negotiate, debt expert Gerri Detweiler told MSN Money. Rather than automatically seeking out a company to help negotiate debt repayment, you can try doing it yourself.
Determine whether your account is with the original creditor or with a collection agency. Generally, if you are 180 days late on your credit-card payment, the lender sends your account to collections, but this could happen sooner. If you are not sure, call your creditor and ask if your account is still with them.
Have a good reason to be late with your payments. If you are experiencing financial difficulties, be honest with your creditor, and explain the problem. Most creditors have no incentive to negotiate with you unless you stop making payments.
Offer a lump sum settlement that is 30 percent to 50 percent of your balance. If you don’t have a lump sum, you might be able to work out a deal whereby you make payments. Tell your creditor that you will have the settlement paid in six months or less.
Talk to the debt collector the first time he calls if your account has gone to collections. Find out the collector’s name, contact information and how much the creditor says you owe. This is not the time to give out personal information, such as where you bank, where you work or your Social Security number.
Ask the debt collector to mail you a letter containing the name of the creditor to whom you owe the debt and how much you owe. If there is an error, dispute it within 30 days by sending back a written dispute.
Offer a lump sum to the debt collector after you receive the letter. Say that this lump sum is all you can afford to pay. Once your account has gone to collections, your original creditor has probably already written off the debt and sold the debt to the collection agency for much less than what you owe, which could have been pennies on the dollar. Therefore, almost any amount you offer is profit for the debt collector.
Get a written statement from the debt collector before you send money detailing the terms of your negotiation. The letter should state how much you are going to pay, that this payment settles your account to a paid-in-full status and that this debt collector will not sell the unpaid portion of your debt to anyone else.
Know your rights under the Fair Debt Collection practices Act, which protects you from deceptive, abusive and unfair debt-collection practices.
Contact a reputable credit-counseling agency if you need additional help. You can find one through the National Foundation for Credit Counseling.
- When you settle debt, you must report any amount the creditor forgives that is more than $600 on your income taxes.
- Expect your credit score to go down if you settle debt. Future lenders who see “settled for less than full amount” or other similar language on your credit report will be more reluctant to grant you credit, or if you do get credit, it will probably be at a higher interest rate.
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