Debt Settlement

15Oct 2015


Learning how to ask for a debt settlement is all about knowing when to strike and how to ask for it. But, before you jump into negotiating your payment plan, you need to be equipped with all the knowledge you can gather. Showing that you know your stuff will not only show the creditor you mean business, but will also ensure that they treat you with respect, and abide by all guidelines and ethics.

What surprises most people is finding that, yes, you can cut the debt on your credit cards bills in half, if not more! That’s right. Under the right circumstances, and equipping yourself with the right knowledge, you can finally see a light at the end of the tunnel. If you are ready to say goodbye to financial burdens and finally start to gain control over your finances, follow our guidelines and tips for debt settlement and give yourself a fresh start today!

What is a debt settlement?

Before we go into how to go about negotiating your debt, you need to know exactly what a debt settlement is. Debt Settlement, also referred to as debt consolidation or debt negotiation, and often serves as an alternative to filing for bankruptcy. The process involves an offer of a settlement, or a one-time payment of about half, if not more, of the amount which you owe, to use as payment for your debts.

Since you are unable to pay the entire amount that you owe, you instead offer to pay about half, give or take, of the amount. For example, if you owe $10,000 on a credit card, and cannot pay it off, you would offer to pay a lump sum of $6,000, instead.

You may be wondering why any creditors or credit card companies would allow you to only pay a portion of your owed debts. There are usually two reasons for this. One, the company itself is in need of cash, and, two, they are fearful that you will eventually not be able to pay off the balance as a whole.

Since credit card companies cannot seize property as collateral payment, and you are severely in debt and headed toward bankruptcy, lenders recognize that they could potentially receive no payment at all. Or, as we mentioned, they might be in need of money themselves, at which point they will be more worried about making as much as they can right now. Either way, creditors realize that a partial payment is better than no payment at all, and they will often negotiate with you.

You need to keep this in mind while setting out to negotiate a debt. Obviously, creditors aren’t going to openly advertise this as an option, and they will likely try all the ways they can to get the full amount out of you. But, if you truly can’t pay the amount in full, and you know you have the right to ask for a settlement, you will generally be successful. Lenders will usually accept a partial payment if it looks like they might never receive a payment in the future.

Do you need an attorney?

While you do need an attorney when filing for bankruptcy, most people don’t think they would need one for debt consolidation. By no means is it absolutely mandatory. However, using an attorney to help negotiate a settlement can take a lot of pressure off of you. An attorney already knows your rights and legal grounds. Attorneys will help to exhaust all options to see the outcome you desire.

Here are the ways in which an attorney can help you with debt settlements:

They recognize scams
Companies that claim to specialize in debt relief or consolidation, but ask for money upfront for their services, are usually scammers. They will take your money without a guarantee of results.

They offer cease of harassment
When you work with an attorney, you can redirect all your harassing calls from creditors to them. Once you have an attorney to represent you and your case, creditors can ONLY talk to them and cannot call you again.

Negotiation is in their job’s nature
An attorney’s job is to convincingly argue for his or her client’s desired outcome. Attorneys will take on the creditors and be able to successfully negotiate until the credit card companies agree to settle for the partial payment.

Often the credit card company will settle for the attorney’s proposed percentage because they know that if they don’t agree with the partial payment, then the borrower is likely headed toward bankruptcy, meaning the lender would end up with nothing.

While the pros of debt settlement are obvious-that you can potentially eliminate your monthly balance, lessen your debt, and give you your peace of mind back, there are some cons to consider. Before you attempt a settlement, make sure that you are fully aware of every angle, and that this is the right move for you.

First, remember that you are offering a large sum of money at once. If this is not laying around in a bank account, you need to consider the ways in which it will affect you and your family. Paying off a huge lump sum may cause some huge changes in the standard of living you are used to.

Secondly, debt settlements will usually show up on your credit report and lower your score. For the next few years, this will cause some difficulty if you try to secure any affordable new accounts or loans.

Negotiating 101

If you believe a consolidation is the right move for you, whether you decide to hire an attorney or go at it solo, you want to make sure it is apparent to the credit card company that you are in a truly dire situation. If they look at your statement and see expensive meals, vacations, and other purchases, it is likely they will not take mercy on your situation. Likewise, if they look into your history and see that you have been making minimum payments every month, they will be less likely to believe you’re going through financial troubles.

It is always a good idea to let your credit card company know when you fall behind financially and, if you are going to ask for a settlement, you need to cut all spending on your card at least three to six months beforehand.

When you’re ready to make your settlement, call your credit card company and ask to speak with someone in the settlement department. Once you are connected with the correct representative, explain your situation and explain that you are at your wit’s end.

Another key for when you set out to negotiate is to mention you want to at least pay off ONE of your accounts before the money is gone. Hearing that you are trying to get settlements on numerous accounts will make your lender more likely to give you a competitive offer.

Also, remember that your lender wants to hear a dollar amount for your offer. Propose a lump sum payment of around 30 percent of your balance. They will likely try to negotiate for a higher payment; however, if they ask for more than 50 percent of your balance, consider how that will affect your finances. If you can’t do that, consider offering a settlement to another company or saving up for that payment in the future.

Once you finalize any settlement plans, ALWAYS get the agreement in writing. This way, you will ensure that the company doesn’t claim to verbally agree with the settlement, and then turn you over to a collection agency. Make sure the agreement clearly states the nature of the settlement, from how much the total balance was and how much you are willing to pay.

Tips for Budgeting

Budgeting your money will make a world of difference. If you have never really created a budget before, it’s never too late to start! All you need to do is take the time to sit down to look at your finances and use some organizational skills. Once you create a reasonable budget for yourself, abide by it, and you’ll see the difference it makes on your spending and saving habits.

Take a thorough look into your spending habits. Set a trial month to spend as you normally would, but keep EVERY receipt and record of your spending.

After that month, sit down and record your expenses and your income. Make a list of every amount that came in and went out. Be as detailed as possible, to get the best overview of your spending.

Create categories of your expenses. Separate bills, such as gas and groceries, rent/mortgage, utilities, insurance, credit card payments, etc. as your mandatory category.

Another category should include all food (or coffees) that were not purchased to stock your fridge.

Lastly, create an “extras” category and put all remaining spending, like clothing, trips to the salon, gadgets, and monthly subscriptions/memberships in it.

Next comes the hard part. After visually seeing how much you’re spending, you need to determine what needs to be greatly reduced or cut completely out of your budget altogether. Obviously your monthly bills, gas, and grocery money are mandatory. You should always make sure your monthly income goes to those first.

Last, set goals! Setting goals will help you work hard to stay within your budget or save a certain amount in a year to meet them.

Learning how to make saving money a regular practice, you will not only pay off your debts faster, but you will ensure good financial standing from here on out. Plus, saving money is easier than you think! Follow these simple steps and start saving money to pay off (and keep off) your debts today!


Open a Savings Account
First things first. To save money, you need to open a savings account. What helps a lot of families is to set up automatic transfers from their primary account to drop an allotted amount into their savings each month. Plan this around your paycheck so you never see that money. Also, it doesn’t have to be a huge amount. Determine how much you want to save each month, or from each paycheck, based on your income and immediate bills.


Put Any Extra Money Aside
Whether you receive a bonus at work, or find yourself with some extra cash, although it will be tempting to spend it on a weekend getaway or new tech gadget, instead, put it in your savings account or emergency fund.


Sell Unwanted Items
Host a yard sale, sell items on Craigslist or eBay. This can be anything that is in good condition that you don’t use, such as clothes, appliances, furniture.


Bring Your Lunch to Work
This will save you tons. If you always eat out for lunch at work, start prepping meals at home, and bring them to the office. This is such an unnecessary expense that takes up a hefty amount of your monthly budget.


Save $20 Off Your Grocery Bill
This is an easy way to spend less monthly, while at the same time it’s not too extreme. Spending just 20 dollars less each week or month will help you save anywhere from 200 – 1,000 dollars! Do this by cutting out sodas, snacks, sweets, or anything else that isn’t necessary.


Cut Out To-Go Coffees
Along with those lunches out, grabbing lattes on the way to work sucks the money right out of your account. With prices nearing (or exceeding) five dollars per cup, you will be able to save immensely if you start making your coffee at home.


Get Rid of Memberships
Gym memberships usually have high monthly fees. Cut out those, and all other memberships you don’t need, especially if you don’t use them.


Stop All Subscriptions
Along with those memberships, stop all magazine or newspaper expenses. They may not be expensive, but they do add up. Use that money for more important items!


Seasonal Part-Time Job
If you’re able to, pick up a seasonal job and put those earnings toward savings. Tons of companies and businesses need the extra help around the holidays, and you’ll be able to make quick cash.


Use Your Talents to Make Extra Cash
If you’re artsy, maybe you are fluent in another language, or perhaps you love children, put those talents to good use! Offer to babysit for friends or family, walk the neighbor’s dogs, or tutor a student in a foreign language. These are great ways to make extra earnings, and you’re able to easily put those toward savings!


Collect Loose Change
Piggy banks aren’t just for kids! Each day, throw your loose change into a jar, and watch the money add up. You’ll be amazed at how much money you’ll collect at the end of each month! Deposit those savings into your account, or keep the cash in the house for emergencies.

These bad habits will get you in trouble, time after time. After planning and going through with your debt consolidation, strive to improve your financial status by recognizing your bad habits and getting rid of them ASAP!

  • Having multiple credit cards
  • Not checking statements or balances
  • Only paying the minimum balance
  • Avoiding creating a budget for your household
  • Not having a savings account or emergency fund
  • Not prioritizing bills
  • Trying to buy the newest and best of everything,
    when you can’t afford it

  • 08Dec 2014

    The Difference Between Secured Debt and Unsecured Debt

    No debt is the same. In fact, debt is usually placed in one of the following categories: secured debt and unsecured debt. Such a categorization is very essential, since it guides you in your borrowing habits and determines the type of payment terms that accompany the debt.

    With secured debt, the amount of money you borrow is linked with an asset. This asset functions as collateral for the loan, which means that the creditor (the person who lends the money) can take the pledged item if you as the borrower default on the loan. Thus the collateral secures the loan. Cars and houses are two of the most popular items used for collateral; the idea is that the item has to have a significant amount of value, or can be easily turned into cash to cover liabilities. Examples of secured debt include personal loans, mortgages, and auto loans.

    By contrast, an unsecured debt is not secured by any assets—thus the term “unsecured.” So, if you default on your payment obligation, the creditor cannot take any of your belongings. However, the creditor can take you to court and obtain a money judgment against you. Examples of unsecured debts include credit cards, medical bills, student loans, and rent and utility payments

    07Jul 2014
    Start Fresh Northwest | Debt Settlement Specialists

    How does debt settlement work and how can it help me?

    If you are living paycheck-to-paycheck, you are not alone. There is a debt plague happening across America, as many people lost their jobs, their savings, and are living on borrowed money. If you have a high debt-to-income ratio, debt settlement might seem like an attractive option. However, is debt settlement a positive thing, or will it make matters worse? Here is a guide to debt settlement and understanding if it is the best option for your situation.

    What Are Debt Settlement Companies?

    The debt settlement companies are typically for-profit, and work with your creditors to resolve your debt. They work hard to settle debt between a credit card company and you. The debt settlement company will focus on getting the credit card company to accept a smaller lump sum payment. For the company to settle your debt, they need to accumulate money in your account. They will ask you to stop paying your creditors, and start paying them. As money accumulates, they will contact the creditor and try to get them to accept a lump sum payment.

    Will Debt Settlement Hurt My Credit?

    Yes! Debt settlement is something to carefully consider as it has a major impact on your credit. When you fail to pay a debt, the creditor will hit you with late fees, penalties, and other charges. You will continue to accumulate additional debt, and it will significantly impact your credit rating.

    Do I Need to Pay The Debt Settlement Company?

    The company will handle a lump sum payment to your creditors, but you need to pay them monthly. Most people find themselves stuck waiting for 36 months or more before they can have any of their debts settled. Debt settlement companies will negotiate with the smaller debts first, causing the larger debts to continue accumulating. A creditor doesn’t have an obligation to work with the debt settlement company, which means there is a good chance you will have some debts that are unable to be settled. Since you are not paying your debts, the creditors can file a lawsuit against you, and can put a lien on your home or garnish your wages if they win.

    How Long Will It Take?

    While these companies promise to settle your debts within a few years, it can take upwards of 6 years or more for some people. It all depends on how much debt is being settled, and what the company can do. Settlements can take years, and people can end up with expensive fees to deal with, harassing phone calls, and serious credit problems as a result of debt settlement. Consider credit counseling and other options before you try debt settlement and ruin your financial outlook.