subject: How To Settle Your Debts [print this page] Debt settlement has become a very popular option for people who are facing financial trouble. There are a wide variety of companies who are eager to tell you that they can settle your debt for "pennies on the dollar!" These slogans give the impression that you might be able to settle your debt for 10%, 20% or 30% of what you owe. While some creditors will lowball a settlement just to get it done, a true "pennies on the dollar" settlement that falls within these ranges is extremely rare. So what's the real truth about debt settlement? How can you take advantage of the debt settlement process?
How Debt Settlement Impacts Your Credit Report
Settled debts receive a credit report notation that reads "legally settled for less than the full balance." This means there are real pros and cons to settling your debts. On one hand, you won't have open, unpaid debt on your credit report. On the other hand, if you try to get a loan later you will find that settled debts are not really a positive in the eyes of a lender. Settled debts tell the lender that if he extends a loan to you, it is possible he'll only get "pennies on the dollar" back on said loan. It's as if you lent your neighbor or co-worker a dollar, and then the neighbor "settled" it with you for seventy-five cents. You might not be so eager to loan out the dollar a second time. Still, settlement remains a valid, legal way to get out of debt.
Settlement Usually Happens in Collections
It's very rare to settle a debt with a first party collector. If you owe a bill with Kohls, for example, then you won't be able to work out a settlement on your Kohls bill until they send the bill off to collections. Even after the bill goes to collections it typically needs to be an older bill before anybody will settle it. This isn't to say you should simply leave all of your bills unpaid until they are old enough to get settled. It simply means that you should pull out your older bills that are currently in collections and set them aside as potential candidates for settlement.
Every Company Has Guidelines
Whether or not a collector can settle a bill, and for how much, depends upon the client the agency is collecting for. Not every client will settle. Some clients are much more aggressive - they're going to give you one shot to pay them in full, and then they want to send you to court. The companies that will settle have already given the collection agency specific guidelines on the settlements they will and will not accept. Trying to haggle below that guideline is just going to waste your breath, your time, and the collector's patience.
Have Realistic Expectations
In general, the settlement figure you are likely to realistically receive is going to be somewhere between 70% and 85% of the original amount owed. If the collection agency has made a big mistake or has committed a big violation of the Fair Debt Collection Practices Act then you might be able to push that figure lower. You might also get a break if you are unemployed and a third party such as a relative or friend is standing by with immediate money, and the agency knows they are unlikely to get money out of you any other way.
Be Ready to Pay at the Moment of Settlement
The collector has to collect the entire settlement amount up front when he settles a debt with you. So if you settle a $900.00 bill for $700.00, you need to be ready to pay the entire $700.00 right then and there. A collection agency can't leave a settlement offer on the table indefinitely. Some agencies can only keep the offer open for a day or so. Some agencies can't make an offer a second time if you don't pay it the first time. Collectors usually avoid breaking a settlement up into smaller amounts, so don't try to settle until you have all of the money you will need in hand.
by: Espen Nueva
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