Eight things you need to know about debt settlement

Date Added: July 28, 2011 10:08:26 AM
Author: David Baddeley
Category: Financial: Finance and Investment: Debt Advice

Eight things you need to know about debt settlement

While debt settlement can sound like a simple proposition, the actual process can be an awful lot more complicated. Half of the battle to getting the debt settlement you need is knowing some of the factors that affect a lenders decision whether or not to settle.

Here are eight things you need to know about debt settlement before you go ahead and start the negotiations with your lenders:

1.Deal with the right company

Your debt could be sold onto a debt collection agency, so keep your paperwork up to date and always make sure you are dealing with the right company. Some debt collection agencies can even outsource the debt collection part to another company, which can make things a little confusing. Make sure any final debt settlement paperwork is in the name of the right company so you don’t end up still owing someone.

2.Unsecured debts only

Only unsecured debts such as credit cards, loans and storecards are eligible for debt settlement. Secured debts such as mortgages, student loans, hire purchase loans and child support arrears cannot be included.

3.You need a thick skin

Debt collectors are trained to frighten you into giving them the money you owe and they receive commission for every debt they collect, so you have to become emotionally detached to deal with them. This isn’t easy when you’re scared and your financial future is at stake.

4.Speak to the right person

Not knowing who is the right person to negotiate with can add weeks to the negotiations. You could end up paying more than you need to or worse, end up not getting a settlement at all because the person you speak doesn’t have the authority to make appropriate settlement decisions. Also some negotiators are more pleasant than others so it always pays to find those who aren’t hell bent on being uncooperative.

5.What is a good settlement?

Different lenders have different criteria for making debt settlement deals. One lender might not budge for anything less than 75% of the debt repaid as debt settlement, another might consider an offer as low as 40-50%. Knowing the threshold limits can help stop you from making larger offers than necessary.

6.Tailor your approach to lenders

Knowing how lenders operate can cut down on the amount of stress you will experience negotiating. One lender might routinely play hard ball but will generally accept a debt settlement after a couple of reasonable offers from you. Another might refuse to negotiate at all and hand the debt over to a collection agency, so you have to begin again from scratch.

7.Threats of court action

Expect threats of court action every now and then. This is a commonly used point of leverage with lenders who think that a threat of court will frighten you into paying what you owe immediately. Don’t disregard it if it happens because it is important, but equally don’t be too frightened by it. Do some research into whether court action threats are a routine feature of negotiations with your creditors.

8. Use a debt settlement company if you need to

Not everyone enjoys the prospect of doing battle with lenders. If you know you might not be able to deal with the stress of negotiation, find a reputable third party as soon as possible to do the job for you.

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