Whether you are facing past due credit cards, medical bills, or are dealing with a debt collection lawsuit, debt settlement maybe a viable option for eliminating your debt problems. However, debt settlement doesn’t work in all cases. With that in mind I have put together four keys that I have observed over the years that lead to a successful settlement of your debts:
#1 – Access to Money to Make a Lump Sum Settlement
To really entice your creditors to take less than what they are owed you likely will need a lump sum of money. Often if you can pay in a lump sum you can get the creditor to take much less than they normally would accept. This also has the benefit of reducing any additional interest payments or fees associated with the collection.
Notice that I didn’t say that you had to personally have the money to make the payment, but that you have access to this money. Often people will loan the money, take it out of a 401(k), or seek a gift from a family member to make this work.
#2- The Fewer the Creditors the Better
Debt settlement is most effective when you have only a few creditors. The reason is when you are trying to settle your debts you want to get everyone on board. If you can’t get all of your creditors on board then you may find yourself in a situation where half of your creditors settled out but because the remaining creditors won’t settle you end up needing to file for bankruptcy. The fewer creditors you have the more likely you will get them to agree, where if you have numerous creditors there is more of a chance that one will be stubborn and hold out.
#3 – The More Delinquent the Better
The debt collection industry understands that the longer a debt goes unpaid the less likely it is that the debt will ever be paid. With that in mind many creditors are often willing to take considerably less if the debt is old. The opposite is also true – if you are current on the debt or only a month behind there isn’t a lot of motivation at that point for the creditor to take less than is owed.
This principle can be taken too far though. If your debt is very old the creditor (or junk debt buyer) may elect to file a lawsuit against you. If you end up with a judgment against you a lot of the leverage you had is now gone. Once a judgment is entered the creditor now has a lot more power than they did before. At this point they can garnish your wages, levy your bank account, and generally make life more unpleasant.
#4 – Get the Settlement in Writing
Debt collectors don’t like to put anything in writing, but this is a necessary step. Even if they do nothing more than send you a letter or email confirming what the terms of your agreement are, make sure you get it and that they acknowledge your payment. Otherwise you run the risk that you will pay the settlement and the debt collector will continue to try and collect on it, or worse that the debt was sold to more than one debt buyer and they will continue to pursue you.
Sometimes debt settlement simply isn’t an option because you don’t have the funds or access to the funds to make settlement work. But for others it can be a great way to eliminate debt without having to resort to bankruptcy.
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John Skiba, Esq.
We offer a free consultation to discuss your debt problem and help you put together a game plan to eliminate your debt once and for all. Give us a call at (480) 420-4028