How to Settle Your Debt like the Pros

Everyday you hear the commercials about the companies that can settle your debt for a fraction of what you owe and what you save you never have to pay back. These and other debt settlement companies alike are raking in the dough by doing for people what they can do for themselves. In fact they even tell you what they do in their commercials, negotiating with your creditors to settle your debt on your behalf. In return for settling your accounts they normally keep a percentage of what they save you.

With the proper research and enough courage one can settle one's own debt in the exact same manner. From experience in the credit repair field I have been able to pick up a lot of great debt settlement tips and tricks along the way. There are a few methods out there to use when attempting to settle a debt so I'll give the most strait forward version. It is always good to remember to do your proper research when handling any potential legal and financial matters as you will be the one ultimately responsible for the outcome.

If you have collectors calling your house (and your job in some cases) you'll want to put a stop to that. Do this by searching online for "collection cease and desist letters". Fill in the necessary information for a particular the agency calling you and the account they keep calling about. In a few days you can thank the Fair Debt Collection Practices Act for a silent phone. If you have more than one collector calling you will need a letter for each. Once they receive the letter they will only be able to contact you by mail.

Next comes the hardest part of settling your debt...paying it, or at least getting in a position to pay it. Do this by figuring out an amount that you can put aside every month to save up for your negotiating efforts. If the amount you can put aside is rather small compared to your debt amount you may be wasting your time all together and not being realistic with yourself. Also if your current monthly expenses are too much or you have no income to allow for saving, that is a problem you'll have to address before attempting debt negotiations with your creditors. You will definitely have to raise money, increase your income, cut down on spending, or use a combination in order to be successful at negotiating.

Once you have set an amount to save and put aside every month its time to put your debts in order. Unless you have a great memory you'll need to get a record of the debts you owe. Even if you do remember to who and how much you owe it is always best to obtain a copy of your credit report because this is the official record of your debts. Let's say you do remember a debt but it doesn't show on your credit report. Those are the ones you should worry about last because they aren't affecting your credit score currently. There are two ways to order your debts from here, either from largest to smallest amount or from most recent to oldest debt. If you foresee yourself applying for a loan or credit card in the near future you might use the most recent to oldest method. The reason for this is that the newest negative information on your credit report has the biggest impact on your score. Keep in mind that while you are not paying your debt your credit score will continue to drop.

When you've saved up at least 80% of the amount you owe on whatever debt you have decided to work on first, its time to contact the creditor or collection company. If your debt has been charged off (sold to another company for collections) then you no longer owe whoever your account was originally with. You'll have to find which credit collection company now owns your debt using your credit report. Often your report will say "transferred from.." or "sold by..." with your original creditor's name next to it. It's easier to negotiate with collection companies than it is with original creditors. The reason for this is when your debt gets sold to a collections agency by your original creditor its sold for a percentage of the amount you owe. This is where your negotiating room comes in. For instance if your debt of $1000 was sold to a collections company for $800, the collections company stands to make a $200 profit by getting you to pay up. The profit increases as your debt is sold numerous times.

When contacting the companies you'll need to be firm because they'll try every trick in the book to get you to pay in full. The best way to even the playing field is to do everything by mail with some sort of tracking. The normal way to open negotiations is to send the collection company a check for an amount 50% -65% percent of the amount you owe with a letter and a statement written on the check itself saying something to the effect of cashing this check settles any debt owed between you and them. Before sending the check you'll need to make a copy of the check and letter to keep for your records in case they don't hold up to their end after cashing the check. They may not go for it at least at first so be prepared to...negotiate and be persistent. When the two of you agree to an amount make sure its in writing. If they don't send you a letter back, your copy of the cashed check and letter will be sufficient. Don't forget to throw in the company removing the negative items from your credit report.

Continue to save and handle your accounts one by one to work yourself into a debt free position. If you have access you may want to research more debt negotiation tips and tactics on your own to help you in your quest. It always helps to consult a lawyer or legal expert as well in your negotiating efforts. Please note that this will not work on installment accounts like mortgages and car payments. Since your car or home serve as collateral for the loan, the lenders will normally just repossess the property. However, you may be able to make arrangements with the banks to short sale your home or car.