Going through DIY Debt Settlement

This is a guest post by Frank Collins. If you'd like to guest post on this blog, click here.

Financial Management,debt settlement
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If you have more debt than you think you could ever repay and you don’t want to file bankruptcy, you should consider DIY debt settlement. Debt settlement is a way to get out of debt for good, by paying just a fraction of what you owe.

You may have heard financial management advertisements for debt settlement and dismissed it as another debt scam. However, settlement is a legitimate way to handle your debt and it’s not a scam when you settle your own debts.

How DIY Debt Settlement Works

With a settlement, you ask your creditors to accept a one-time, lump-sum payment on total balance due and cancel the rest of the balance. Once the creditors agree, you make the settlement payment and the score is settled. You’re no longer responsible for the balance of that debt.

What You Have to Do

If you’re still making payments on your debts, you’ll start directing these funds into a separate account that you’ll use for paying your settlements. Make sure you funnel this money every month without fail so you can settle your debts sooner. There are two reasons you must stop paying your accounts. First, creditors generally only settle accounts that have defaulted or are at risk of defaulting. This isn’t the case for any account that’s current on payments.

The second reason you save up your payments is so you have the money available and ready to pay the settlements when your creditor agrees. Some people have access to money they can settle with, like retirement, home equity, etc. Other people need to save up to pay their settlements. Creditors typically want settlement payments within a few days of the settlement offer, so having the money ready is critical.

One of the biggest parts of settling your debt is being able to negotiate with your creditors, e.g. credit card companies and debt collectors who you owe. When you make your debt settlement offer, be prepared for some resistance to your creditors, who prefer you to pay your debts in full. Know what you can afford to pay and stand your ground, especially if your account is already charged-off or has been placed with a collection agency.

Offering a Settlement

At the outset of your debt settlement plan, make a list of all your debts and the amount that’s currently due. Write down a “high” settlement amount that’s 70% of the balance due and a “low” settlement amount that’s 30% of balance due. You want to keep all your settlements at or below these two amounts. When you make an offer to a creditor, your offer will be between these settlement amounts depending on what’s in your settlement account. If the creditor makes a higher counteroffer, you have your “high” settlement amount to let you know when if their offer is more than you can afford.

You can make a debt settlement offer over the phone or by sending a letter to your creditor. Either way, be sure to get a settlement offer letter back from the creditor on their company letterhead including the settlement amount and date of the settlement. The letter should say the settlement payment is full satisfaction for the debt.

After you’ve made the settlement payment, check your credit report to be sure it’s updated to show a zero balance for that account. DIY debt settlement is a real possibility in this day and age and settling debt on your own is sound financial management advice.

This is a guest post by Frank Collins. Frank is a personal finance writer who specialized on topics related to loans, saving and debt relief options like debt settlement.

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