Settling Debt That Is Less Than $10,000 – DIY
In the debt settlement industry
most companies will not work with you unless your total debt exceeds $10,000.
This does not include any debt owed on a vehicle or property.
Unfortunately this leaves a lot
of individuals with debt problems without professional representation. Which
ultimately can lead to an individual not doing anything about their debt and
just trying to ignore the hassles that come along with it.
It’s not too difficult for a
consumer to do the research and then take the same steps and measures that a
professional would. The following is a basic outline of how one should go about
trying to reduce the amount that is owed and clearing the debt.
The first step is to obtain your
credit report. AnnualCreditReport.com will provide you, free of charge one
report from each of the three credit bureaus. Equifax, Experian and Transunion.
These reports will give you detailed information regarding any past due debt
that is reported on your credit history. However these reports do not include
your credit scores. If you’re interested in obtaining reports with your credit
score, we suggest you go to CreditReport.com.
Once you have these records you
should review them and compare them to your own to see if there are any
discrepancies. One of the easiest ways to eliminate debt is to find any
erroneous claims, dispute them with proper documentation and then submit it to
the credit reporting agencies.
When you have an accurate list of
companies that you have a debt with you can now begin the process of contacting
them to negotiate the amount of debt that is owed. Not all companies will have
the ability to negotiate directly with consumers. In many cases (especially when
the debt is old) the debt will have been turned over or sold to a collection
agency. It’s the agencies job to essentially harass you until you decide to pay
off the debt.
In the case that you are not able
to deal with the company you have the debt with, ask them for the contact
information of the company that the debt was turned over to.
You now have to negotiate
directly with the collection agency in order to pay off the debt and have it
removed from your credit report.
One important thing to note is
that the older your debt is the more willing the collection agency will be to
take less for it. For example if your debt was four years old and you owed
$3,000 you might want to try offering 20% or 30% for it. This won’t always work
and some creditors and companies can be more difficult to work with than others.
Utility companies are notorious
for basically stonewalling anyone attempting to reduce a debt that’s owed. Be
prepared to pay the full amount due if you’re trying to clear up a debt that’s
owed to a utility.
One advantage that consumers with
less than $10,000 in debt have over someone with a higher amount (aside from
having less debt) is that companies may be less likely to sue those persons in
court due to the costs associated with doing so. So in many cases collection
agencies and companies who are owed monies are happy to recover just about
anything if it’s a very old debt. Remember be aggressive with these companies,
you’re contacting them. If you offer a 60% reduction and they counter with a 10%
reduction, walk away. Let them think it over for a week or a few months. If you
contact a collection agency and the representative you speak with initially
isn’t authorized to make any reduction to the debt owed then speak with someone
who is. You might have to put some real effort into reducing the amount of debt
owed. Just remember what your goal is, financial freedom and the ability to
answer your phone without worrying about who is on the other line.
Another key factor in determining
how much of a reduction you can negotiate for depends on the statute of
limitations in your state. If the debt owed is five years old and the statute in
your state is three years, then the company who you have the debt with has no
ability to bring you to court to try to recover the funds. It’s in your best
interest to know what the laws are in your state before you jump into a
negotiation with a creditor. You can find a list of states and the statutes
In the event that a debt that is
on your report is fairly new there are a few things to keep in mind. Most of the
time companies will not begin the settlement process unless the debt is 120 days
old and has been charged off. The debt might just be
bounced around from agency to agency. Again remember the older the debt the less
likely it is to be “deemed collectable”. If you can negotiate a new debt down
to 60% or 70% of what it was originally you’re doing well.
Vehicle repossession debt is
become more and more common. The way that it works is simple. If you buy a car
for $30,000 and make $8,000 worth of payments and then the car is repossessed
and sold for $15,000 then there’s still a “deficiency balance” of $7,000.
If you come to an agreement with
a creditor and you want to settle a debt there are two very important things
that you’ll need before you do. First of all any offer or financial agreement
needs to be put into writing and provided to you by the creditor. Never make any
kind of a payment based on a conversation that you had on the phone. Even if you
contacted the creditor or collection agency and have spoken with a supervisor
and the call is being recorded, do not make a payment. Any company that is
legitimate and serious will make the extra effort to put the settlement into
writing and then send it to you via fax, email or traditional mail.
The next most critical thing you
absolutely must have in order to pay off a negotiated debt is the money to do
so. All of this is pointless unless you actually have the funds to make it
happen. Some collection agencies and companies will allow you to make payments
opposed to just a lump sum payment. It’s more advisable for you to pay off the
debt all at once. It ensures that the debt is actually getting paid off and also
gives you an advantage when negotiating your settlement.
Once you have accomplished your
goal and paid off your debts it’s very important that your credit report is
updated to reflect your payment. If you discover your credit report is not
reflecting payments, then you must copies of the settlement documents to all
three credit bureaus. This would also be a very good time to sign up for a
credit monitoring service to make sure you’re aware of everything that shows up
in your report.
So you might be asking yourself,
“Why doesn’t everyone just settle their debt on their own?” Well when your debt
begins to exceed $10,000 you begin to become a bigger and more lucrative target
for the debt recovery industry. On average only about 15% of individuals who
have serious debt end up in litigation. Additionally when the dollar amounts of
the debt go up, the more difficult it becomes to reduce the amount owed.
Negotiating a settlement for an
$8,000 debt is a completely different experience than negotiating for an $80,000
debt. Additionally aside from negotiating the amounts owed on behalf of their
clients, debt settlement services expedite the process and also consolidate the
debt into one monthly payment. Imagine negotiating fifteen different debts and
then managing the payment schedule for those debts. While it is possible to
negotiate a debt on your own, the more you owe the harder is get settlement
done. If you owe more than $10,000 in unsecured debt, you need representation.
Just like with the law, you can represent yourself, however there is an old
saying, “he who represents himself, has a fool for a client” With debt over
$10,000 that saying definitely applies.
A settlement agency may provide
“cease communication letters” to help stop harassing collection phone calls.
Hopefully this article will be of
help to anyone who is looking to clean up their credit and improve their quality
of life. Be sure to check back in soon. We’ll be publishing a guide to dealing
with debt that is associated with IRS judgments, avoiding debt while attending
college and how to improve your credit score once it’s been severely damaged by
This information is provided as a
courtesy of SettleDebtNow.com. We're affiliated with FDR who has over 35,000 clients and have over 1 billion dollars under management. We
are members of the Better Business Bureau.