Debt Negotiation happens in two basic ways: by a professional, or by yourself.
Here are a few strategies the professionals use when handling a debt negotiation on your behalf.
In this discussion, we are only looking at “unsecured debts”, which includes credit cards or medical debts most commonly. It simply means any debt which has no collateral, such as a car loan, home loan, boat loan, etc.
Before you start any debt negotiation, you should expect that you’ll take a “hit” on your credit score. Any creditor who lent you money is not going to just let you get out of paying any less than the full balance and let you retain perfect credit.
That said, all credit automatically repairs itself when all future payments are made on time. In many cases someone can suffer credit damage from a debt negotiation and within two years, provided all future payments are made on time, have an excellent “A+” 730+ fico score.
In addition, many people confuse credit “Score” and credit “ability”. If you have a perfect 850 fico score, but do not qualify for more financing because you are carrying too much debt already relative to your income, then you have zero credit ability. Frankly, the creditors have worked hard to make you believe these are the same, so that you keep paying. If you are looking for debt negotatiation, you are probably carrying too much debt. If you’re willing to stop using your credit cards for a while and don’t plan to buy a home or car in the near future, then it may save you many thousands of dollars.
The most common strategy the professionals use is to stop making payments, and instead save the money up so that a single lump-sum payment can be offered.
In addition to this, a debt negotiation professional will also prepare a specially formatted letter containing a legitimate reason why you could afford the debt before, but cannot afford it any longer, and if things continue, it will end in bankruptcy or charge-off. This usually contains a factual story, referred to by professionals as a “hardship”. This can include medical events, loss of job or income, dramatic increase in expenses due to some sudden unforseen reason i.e. divorce or adjustable mortgage changes, or a natural disaster.
There are a few reasons why a debt negotiation professional can reach a better, lower debt negotiation settlement offer than you doing it yourself.
First, debt negotiation companies deal with thousands of clients at a time, so they’re able to reach higher up the chain of command. A consumer will usually reach a lower-level technician, who is not authorized much leeway for debt negotiation. An attorney or non-attorney professional can speak with a vice president because they are offering sometimes hundreds of thousands of dollars spread over many accounts based on certain status and net discount amount.
Second, debt negotiation companies know how to say and how to package what needs to be said, at the right time, to the right people.
Third a debt negotiation expert knows the system and averages for each company. A creditor has the legal right to sue you in court for non payment, which could result in a legal judgement, which can mean garnishment of wages directly from your employer, additional court fees, and more credit damage. A professional debt negotiation company can minimize the risk of being sued while still reaching a settlement around 42 cents on the dollar.
Last, because a debt negotiation company has either attorneys on staff, or non-attorney trained negotiators on staff (depending on your state’s laws, and your file), they know the creditor’s tricks. The credit card industry makes literally billions of dollars per year in profit, and they don’t make this by being nice. However nice the customer service representative may seem on the phone, they have one agenda: to get as much money from you as possible. Most typically, for anyone in a bit of debt trouble, the creditor will suggest “Credit Counseling”.
The dirty secret about credit counseling is that “Credit Counseling” was invented by the credit card companies. They want you to feel like they’re helping, but when you enroll in these programs, you’ll repay 100% of your debt plus interest, suffer credit damage, and they’ll often collect a monthly fee on top of it ($49 a month x 48 months, for example is $2,352 in fees, not including interest). They usually won’t tell you this, but they also get a 15% “fair share fee” from the credit card company, so the IRS has revoked the “non-profit” status of many of these companies.
Like plumbing, taxes, or fixing your computer, you can handle debt negotiation yourself, or you can hire a professional. Those willing to educate themselves to learn how to do it right can definitely save some money. That said, for the reasons stated above, often times the settlement amount offered on a debt negotiation you conduct yourself may not be as discounted as what a professional may get, and therefore the service in almost all cases pays for itself. For example, if you get offered $.80 on the dollar, but a professional gets $.42, then it’s actually cheaper even with the cost of service to have a debt negotiation service handle your case.
One dangerous byproduct of staying in debt is not having enough time to invest for retirement. Most people don’t know exactly how much money they’ll need to retire. Do you? The sooner you use debt negotiation to clear your debts, the sooner you can build your investments to ensure you can retire the way you want – instead of living your golden years as a burden on family, with lower standard of living, or working past retirement.
Financial planning requires you to think logically and carefully about your own lifestyle. After thinking through the various aspects of your financial situation. Determine the financial strategy that you are going to adopt.
I often hear financial planners and consultants blabber on about having at least six months’ of salary as savings. Financial planners often repeat that without giving it much thought. I prefer to think out carefully about my own lifestyle and determine how much should I save. To tell you the truth, I do not like to save too much. Keeping too much of my cash in the savings, prevents me from generating more returns from investments. Just telling me to keep six month’s worth of salary in my savings is not clear enough for me. So how do I determine my savings?
Utilities Bill
I keep a close tap on how much are my utilities bills. Well, its not that difficult anyway. I just keep all the bills in a file! Keep it long enough and you will see that the bill for every month is more or less the same. Choose the highest utilities bill you had for any months and use that as a benchmark. I choose the highest and I multiply by six.
Food
This is a lot harder to keep track. For me, I make sure that all of my purchases is done through my DBS Master Debit Card. At the end of every month, they will send me a statement stating every transaction. From there I will analyze how much do I spent on food per month. I do not include dinners in restaurants, because if I were to fall back on my savings, I will cut out dinning in restaurants and opt for cheaper food. The statement gives me a clear picture of my spending. Just like the above, I take the highest among all the month and multiply that figure by six.
Debts
Ah, this is very important to me. Even if I were to fall back on my savings, I make sure I can pay my debts. This is especially so for my housing loan. If I were to become a bankrupt, all my unsecured debts will disappear but my housing loan does not. Therefore I take extreme care in making sure I can service it. This is a bit trickier. Work out the total monthly debts that you have to service and multiply by six. If most of your debts are unsecured, I will multiply the figure by another 1.5.
Policies and Investments
Certain policies and investment plans requires you to make a monthly contribution. This is very clear cut. Just total all of them and multiply by six.
Finally, I will total all of the above figures and viola! That will be the safety cushion for those six months. This is what I call “Lean Financial Planning”. To fully employ “Lean Financial Planning”, I will make sure that the rest of the money goes into investments. Of course I will set aside a bit of “Play Money” as well, all work no play makes Jack a dull boy.
How To Settle Credit Card Debt On Your Own (“Do It Yourself” Debt Settlement)
I’m often asked, “How can I settle credit card debt myself?”
This is a great question.
There’s lots of info floating around about debt settlement in general; some good info mixed with some dangerously incomplete info… And watch out for all the bad and inaccurate info!
Here’s a quick step-by-step guide for you to accomplish your goal of settling credit card debt yourself:
First, let’s clear up a few things. Then I have three “keys” for you to follow to successfully settle your own credit card and unsecured debts…
Considerable time is required to document, communicate, negotiate and follow up to achieve these results. There are many strategies and factors to consider that may impact results. There are plenty of pitfalls to avoid. Settling yourself for 2/3rds can be a reasonable goal. The general consensus of industry professionals and insiders I know tell me overall, “doing-it-yourself,” consumers settle credit card debt on their own for about 75% on average.
My close friends, however, who are pros and found themselves in financial hardship during recent years, have achieved 10% settlements on many of their own personal credit card debt accounts — but this is only because they were willing to go the extreme distance and knew exactly what they were doing. These folks are the exception to the rule.
Many people are unsuccessful getting any reduction of their debt at all on their own, without even any relief from double-digit interest rates. These folks remain stuck on the exhausting treadmill of slavery to debt and money.
Professional negotiators (including attorneys and arbitrators) average about 50% settlements (some much better than others), and usually charge about 15% in fees (may vary by program type), putting the total cost to use a professional debt settlement service at an average of about 65% or less of your total unsecured debt.
Creditors DO give professionals representing a large volume of debt “special treatment” because large professional negotiators are the “bread and butter” for most collectors. They deal with each other every day. When a professional debt settlement negotiator comes to the table representing millions of dollars of client debt held in “bulk” with a single major creditor, it creates serious leverage for the consumers represented by the professional. Creditors are often willing to do these “bulk settlements” for substantially less than individuals would normally ever be able to achieve on their own.Still, I’ve helped many folks who have a knack for communicating, negotiating, documenting and following up (the four critical skills you’ll need to do this) to get settlements as low as 45-60% regularly.
Make sure you’re ready to do all the communicating, negotiating, documenting and following up required all on your own before you start.
If you are…
Here are the three keys to settle credit card debt on your own:
KEY # 1) The accounts must be delinquent.
Creditors will not settle for anything less than the full balance until your accounts are seriously past due. While good settlements are possible after only 60-90 days, typically settlement take place after 180 days + when accounts are “chargied off.” This is because when creditors “charge off” an account (an accounting entry), they are taking a tax benefit on the account by writing it off as a loss. This de-values the account, and it is no longer worth the full balance owed. In fact, the normal course of business is to sell the account as “bad debt” to a third party debt collector.
STARTLING FACT: In 2006, “bad debt” was sold to collectors for an average of $0.034 cents on the dollar. That’s 3.4%! Can you imagine? This means a $10,000.00 account is typically sold for only $340. Keep this in mind. This is exactly WHY debt settlement works so well, because it’s a better deal to the creditor or collector than any other option, such as a lawsuit, collections or bankruptcy.
With the economy getting worse and bad debt more than doubling in 2009, expect the value of bad debt to drop even further, which means better settlements and more savings for you!
KEY # 2) Documentation BEATS Conversation, every time.
DO NOT make any payments by phone.
Collectors will almost always ask for a check by phone. Say this:
“Unfortunately I’m unable to make a payment at this time; and am hoping to bring resolution to this matter as soon as possible. I understand you want me to make a payment right now, but that just isn’t possible. I will have $_________ (state an amount that’s roughly 35-50% of your balance, not a percentage but a round number) soon and want to settle at least one of my accounts with whoever will give me the best deal. Can you please send me an offer in writing?”
HINT: You can do this initially or in response to a settlement offer that’s too high… Write a “Hardship Letter.” Hand write or type up a letter describing your situation, your inability to pay and include information such as, divorce, medical issues, loss of job, disability or reduced income. Any information regarding your personal hardship will help your negotiation, so don’t hold back. Send this letter along with a request to settle the account for $_______ (again, a random amount roughly equal to 35-50% of your current balance).
Talking sincerely about your financial hardship, lack of income and inability to pay when requesting a settlement offer over the phone can help a lot. Think sob story, but be sincere. Still, in this game… documentation beats conversation, every time.
Track everything (documentation)… who you speak to, their name, phone number and extension, date and time. Keep everything organized in a folder, easily accessible.
NOTE: Certain creditors such as CitiBank, Discover, Kohls, Target and Chase if you live in FL, NY or OH will not settle for such small amounts. You should accept 60% to 75% in these situation and consider it good. All are more likely to pursue legal action as well.
KEY # 3) Use certified mail with return receipt.
Once you get an acceptable settlement offer in writing, send a check. But first… Write your account number for the account you are settling on the check and in the memo write “FOR PAYMENT IN FULL.” Send the check along with a COPY of the settlement offer by certified mail with return receipt.
Once the account is paid to a zero balance, you can do the normal process of credit repair and quite possibly have the account removed through disputing it and requesting verification.
But wait, isn’t “Do-It-Yourself” Debt Settlement like doing your own taxes or dental work?
Sure, it’s possible settle credit card debt on your own. Some people are naturally good at it and even enjoy it, but most of us would rather leave it to a professional to get it done right the first time.
It’s like changing your own motor oil… while most people don’t want to get their hands dirty, you certainly can do it yourself.
Debt settlement is by no means an exact science and it’s difficult for an individual lacking experience to determine if a settlement is fair or not. In addition, you have to directly handle all creditors’ calls and the harassment that come with the job. Many people are simply unable or uninterested in handling that kind of pressure, especially with the daily complexities of managing a job, household or family at the same time.
It does help (big time) to have expert guidance instead of learning on your own through trial and error (expensive and stressful). The cost of professional debt settlement programs may easily be dwarfed by the additional savings you’ll realize by “doing right” the first time.
Hiring a professional debt settlement firm with a good reputation can no doubt save you more money, give you better advice and get you out of debt in a much less stressful manner, enabling you to move on with your life.
This sums up the process of settling credit card debt on your own. A professional debt settlement program makes a lot of sense if the cost to you is the same or less than doing-it-yourself and you get to let the pros do most of the work for you.
FYI: “Credit Counselors” do not settle debt. I’m often asked a similar question, How can you settle a credit card debt without using a “credit counselor?”Credit counselors don’t actually settle debt,, but it’s a common misconception the general public shares. How many of us really know how this credit and debt stuff works? They often are able to reduce interest rates, and collect the full balance through a debt management plan where you pay them one single payment each month while they turn around and pay your creditors for you (hopefully) in full plus interest.
Of course, hiring the right professional for debt settlement services is a different discussion, but *watch out* because there are only a few “good ones” out there… mixed in with many unscrupulous salespeople who would lead you astray for their own gain in the debt settlement industry.
BUT BEFORE you can be certain debt settlement is the best for you, be sure to educate yourself on how credit works, your options for getting out of debt and how to choose what’s best for you.
No matter what…
Make it a Priority to Be Debt Free ASAP, and Stick To It.
Because nothing feels as good as freedom, after you’ve been a slave!
: )
Need More Help or Resource with Debt Settlement to Settle Credit Card Debt On Your Own (“Do-It-Yourself”) or to Find a Trusted Debt Settlement Program?
Many consumers find that they are no longer able to mange their debt on their own. They need help. Debt management plans are an excellent tool for those that need assistance in eliminating their debt.
If you are considering a debt management plan, you probably have many questions as to how it works and what it costs. Each financial management plan agency will work differently, but in general, you should see some similarities between them all.
The debt management service will typically send a proposal letter to each of your creditors. The letter will request your creditor’s approval to enroll your account in the management plan. It will contain you several items, including your net income, living expenses, the names of your creditors, your proposed repayment amount for each creditor and the date of payment to creditors. This lays out the information for the creditor to see where you are financially and what your plan is.
Most debt management plans take you three to five years to repay your debts. This, of course, depends on the amount you owe and the terms set by your creditors. When you enroll, you should be given an estimate which lists all of your debts, the total debt owed to each creditor, the proposed payment to each creditor and the number of months estimated to complete the plan. You should know up-front how long it will take you to eliminate your debt.
The fees charged for your debt management plan will vary from agency to agency. You will usually pay for a copy of your credit report, a small set-up fee and a monthly administration fee. You want to make sure that the monthly fee is less than $50 a month. Be sure that you understand these fees before you enroll. Don’t trust any agency that asks for the first month’s payment up-front or a percentage of your total outstanding debt as the fee.
Most debt management plans require that you include all of your unsecured debts. There are specialized debt management plans designed for small business owners and those with good credit that allow you to keep one or two accounts outside of the plan. Once in the plan, you will most likely be unable to continue to use the accounts.
If a creditor rejects the management proposal, you can try to work with the creditor to reach an agreement. If nothing can be established between the plan and your creditor, you can elect to proceed with the debt management plan without the creditor. However, you will need to make these payments on your own.
Be cautious when choosing a company to work with. Make sure they are licensed and check them with the Better Business Bureau. It is also a good idea to check with your state’s attorney general’s office for any complaints or investigations.This is your financial security you are dealing with. Make a wise decision and then let the plan help you find financial freedom. Debt management plans are a great way to learn how to manage your finances while eliminating your debt.
Are you struggling with your debts and looking for some type of help? Do you need a program that will work with you and help you get out of debt once and for all? There are a few different types of programs that you can use to pay off your debts and free yourself from them. Here are the debt management programs that you can choose from.
The first one is a refinance or second mortgage against your home. This will free up some cash that can be used to pay off some or all of your debts. If you use this option you will be able to free yourself of many debts rather quickly, but you must know that your mortgage payment is going to go up since you will have a larger mortgage or a second mortgage.
The second choice is to use a debt management service. They will negotiate better rates, waived fees, and lower balance pay offs to help you get out of debt fast and easy. This is a great option for those with a lot of unsecured debts like credit cards. This type of service can save you a lot of money, but they will also charge you a fee for their service.
The last choice is similar to the second, but it is a consumer credit counseling service. Out of all the debt management programs they are the only one that will not only help you get out of debt, but they will also teach you how to stay out of debt. This is great because it would do you no good to get out of debt if you are just going to go right back into debt.