How to Negotiate Debt Settlement

In the last post, I gave some tips on how to decide if debt settlement is the right option for you. If you haven’t read that post, you can find it here.

Should You Consider Debt Settlement?

Now, if you’ve decided that debt settlement is a possibility, here are some tips to help you improve your chances of reaching an agreement that helps you reach your goals.

Tips for Successful Debt Settlement

• Be realistic about how much you have to work with. You really need to decide how much you can pay before you ever pick up the phone. That also includes future income if you plan to ask for payments instead of a lump sum. This will help keep you from being talked into a more aggressive payment arrangement. If you can’t pay off the settlement, there’s no point in setting one up.
• Contact your creditor with numbers in hand. Your creditor isn’t just going to bend over backwards to help you. It wants money, and it wants it yesterday. But if you can give your creditor a realistic picture of your income and expenses, as well as how much you have left over to pay the debt, you gain an advantage. Creditors and collection agencies aren’t stupid – they know they can’t take more than you have. If they want the debt paid, they have to work within your constraints. Otherwise, they’ll just have to spend more money on collections efforts (probably with no result).
• Offer a proposal. Usually, it’s the creditor telling you how much you have to pay. But if you’re really behind on your payments, the creditor wants to minimize its losses. Offering a settlement proposal (including how many payments you’ll make) sometimes sets the stage for you to get what you want. It doesn’t always work, but it can swing the conversation in your favor before the creditor can start making demands.
• Ascend the food chain. Don’t assume that the person on the other end of the phone has the final say in whether the creditor will accept your proposal. Instead of agreeing to a settlement you can’t fulfill, ask to speak to a manager. If you don’t get anywhere there, keep going up the ladder. The higher-ups usually have a better grasp of the “big picture,” and understand that accepting your proposal is better than getting nothing.
• Get the agreement in writing. Ask the creditor to send you a letter outlining the agreement, along with its acceptance of the settlement agreement. This includes the total amount you’ll pay, the number of payments, the amount of each payment, and the exact dates when those payments will be deducted from your checking account. If anything goes awry, you’ll have documentation. Otherwise, it’s your word against theirs.
• Keep your debt settlement agreement. Creditors get really pissy when you don’t make your payments as agreed. The chances of working out another settlement are questionable at best. If you know the money won’t be in your account on the payment date, call and ask the creditor to change the date. It’s better for the creditor to change the date than have a payment returned for insufficient funds.