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How to negotiate debt settlement on your own

By Matt Mayerle
Modified on February 27, 2024
how to negotiate debt settlement on your own

Wondering how to negotiate debt settlement on your own? When you owe money to several creditors, it can feel like you are drowning in debt. Thankfully, there are several ways you can find debt relief through settlements. Keep reading to learn about debt settlement and how you can get the financial relief you deserve! 

What Is Debt Settlement?

Debt settlement happens when a creditor and a borrower agree on payment terms to eradicate existing debt. Most commonly, this occurs when borrowers simply pay back their loans. Sometimes, Debt settlement can significantly impact a borrower’s credit report, depending on how they settle their debt. Borrowers who pay off their loans may see an improvement in credit on their reports in the future. On the other hand, borrowers who use a debt settlement company or who opt for Bankruptcy to settle debts may see a significant decline in their credit score over time.  

What Is a Professional Debt Settlement Company, and How Do They Work?

A debt settlement company is a type of organization that will negotiate directly with creditors in an attempt to consolidate debt for a borrower. Sometimes, during the negotiating process, debt settlement companies are able to lower the amount of debt people have to pay. While debt settlement companies can usually negotiate only a portion of debt away, they can still help people save money while they pay off debt. 

How does getting assistance from a debt settlement company work? The first step is to talk to a debt settlement agent. They may have you fill out an application to give them some more information on your personal financial situation. At this time, you can also talk to your debt settlement agent about what kind of settlement offer you are looking for. After that, the company will begin debt settlement negotiations with your various creditors. Your agent may contact you during the settlement process to talk about various settlement offers and which one sounds most appealing to you. 

When you decide on a settlement amount, make sure you get a written agreement. A settlement agreement should contain information about how much money the borrower must pay in order to settle their debts. At the end of the negotiating process, the debt settlement company may require the borrower to pay a few additional fees in exchange for their assistance. Make sure you discuss payment and fees with your debt settlement agent before you agree to accept their services. 

Instead of working with a debt settlement company, you can also get help from a credit counseling agency. With this type of agency, credit counselors are available to give you essential debt repayment advice. They may suggest you work with a debt settlement company or suggest other debt repayment options for you. 

How To Negotiate Settlements and Settle Debt on Your Own

Working with a debt settlement company can take time, and things may not work out how you want. To avoid the potential disappointment, take the situation into your own hands and try a DIY debt settlement. With a DIY settlement, you can talk to creditors on your own and create a personalized payback schedule that works for your unique situation. 

Here’s how you can go about settling your debt on your own.

Calculate Amount of Total Outstanding Debt (Credit Card Debts, Student Debts, Etc.)

First and foremost, you want to calculate how much debt in total you have to pay back. To find this number go through all your different forms of debt. These debts may include: 

  • Student loan debt
  • Credit card debt
  • Past due bills
  • Other loan payments 

After you have reviewed the debt you owe to various creditors, add up the amounts. That remaining balance is your total amount of debt. 

Talk to Your Consumer Credit Providers (Credit Card Company, Bank, Private Lender, Etc.)

Once you know how much debt you owe, work on getting that number down. You can start this by calling your creditors and asking them how they can help you pay down your debt. Many creditors are willing to work with borrowers to help them avoid defaulting on their loans. For example, if you call your credit card issuer and tell them you are having trouble keeping up with their fees, they may be able to get you a lower interest rate or eliminate annual fees. 

Create a Debt Management Plan

Understanding the difference between debt management vs debt settlement is important. The most crucial aspect of debt management is to establish a payment plan. You can start this process by creating a budget. To create a budget, calculate how much you need to spend every month on essentials. These essentials should include expenses like: 

  • Rent/mortgage. 
  • Utility bills, phone bills, cable bills, and other monthly payments. 
  • Groceries. 
  • Gas/commuting costs. 

Once you know how much money you must spend on essentials each month, you will better know how much money you should have leftover after your bills are paid. You can then take that remaining money and put it all towards paying off debt.

What Happens if I Don’t Settle Debt?

Unfortunately, unpaid debt can have a majorly negative impact on your credit score and financial history. When borrowers fail to repay their debt, their lenders may have to send their information to debt collectors or a debt buyer. A debt collector, also known as a Debt collection agency, is usually a creditor’s last-ditch effort to try to get their money back from a delinquent borrower.

Not only can delinquent debt come with late fees and other financial inconveniences, but it also indicates to lenders that you are potentially a lending risk. When lenders and most creditors approve borrowers for funding, they take a look at the borrower’s most recent credit report. Credit reports contain information obtained by credit bureaus, like your credit score and other details about your financial habits. 

Payment history is perhaps the most influential factor reported on in credit reports. In fact, late or missed payments have the ability to negatively impact your credit score for up to seven years. So, to avoid a major dip in your credit score that will last for some time, try to stay on top of your debt. It is better to opt for debt settlement opportunities than to let your debt go unpaid. 

Alternatives To Working With Debt Settlement Companies

You may also find debt consolidation a helpful tool in settling debt. Instead of working with each original creditor individually, you can try refinancing and pay off all your debts in one lump sum. Refinancing is an important personal finance decision, so you may want to learn about the different options before committing to one type of loan.

Check out some other debt-relief options below. 

Long-term Loans vs. Short-term Loans

If you have a minor amount of debt, you may consider getting a brief short-term loan. If you think you can pay off your debt in about two weeks or less, you may try consolidating with a payday loan online. However, keep in mind that payday loans come with extremely high-interest rates and short terms, so make sure you can pay off your loan within approximately fourteen days or less. 

But, if you have a more substantial amount of debt, you may consider a long-term loan option. Long-term loans usually come with flexible repayment terms and competitive interest rates so borrowers can save money while they pay off their debts.  

Unsecured vs. Secured Loans

You may also consider getting a secured or unsecured loan, depending on what kind of collateral you have to offer. Secured loans are funding that requires collateral. Collateral is a piece of property, like a home or a car, that has equity. This equity is what secures the loan funding. Usually, borrowers with extremely low credit opt for secured loans since they are considered less of a lending risk. 

Unsecured loans do not require collateral. With an unsecured loan, the lender will base approval on financial factors like your credit score and payment history. Typically you will get a better interest rate and loan amount on unsecured loans when you have a higher credit score. 

Bank Loans vs. Credit Union Loans

Banks and credit unions are another place you may be able to get a debt relief loan. To get a loan with a financial institution like a bank, it is best to have excellent credit. If you have a less than perfect credit score, you may not even want to bother applying for a loan with a bank. 

You may also be able to get a loan from nonprofit organizations like credit unions. However, it is important to note that many credit unions have strict qualification requirements. So, make sure you check with the organization about their approval standards before applying. 

Personal Installment Loans From a Direct Lender

One of the most versatile debt consolidation options is a personal installment loan from a direct lender. Many personal loans backed by the Federal Trade Commission are available to people with varying credit scores and offer perks like: 

  • Industry-wide competitive interest rates.
  • Personalized repayment terms. 
  • Short-term or long-term loan plans. 
  • A convenient monthly payment. 

Tips for Paying off Debt When You Can’t Afford One Lump Sum Payment

Paying off debt is important for consumers who want to raise their credit score or maintain healthy financial habits. Below are a few tips that may help you get rid of your debt once and for all. 

Pay More Than the Minimum Monthly Payment

One of the most popular debt repayment methods is to pay more than your minimum amount due each month. By paying just a bit more each payment, you can potentially save hundreds of dollars on interest! 

Avoid Taking Out Additional Credit 

While it may be tempting to continue using your credit card or apply for other loans while you are paying off your debt, try to avoid doing so. Please don’t add more debt to your plate unless it is absolutely necessary. If you need more money, try dipping into your savings or asking a trusted friend or family member. 

Make Small Lifestyle Changes

You can also make minor lifestyle changes that can help you save money. For example, try cooking at home instead of eating out every day. You can also get a temporary part-time job and use the extra money to pay off your debts. 

Paying off debt doesn’t have to be stressful. When you make a plan and stick to it, you’ll have your debt settled in no time! In the meantime, you can check out the CreditNinja blog for other free financial resources and advice you may find helpful. 

References:

Debt Settlement Negotiations: A Guide To DIY – Forbes Advisor

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