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Debt Settlement Advice

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HIGHLIGHTS
  • You can negotiate settlements on your debts.
  • Determine if you want to use the services of a debt settlement firm or try to settle debt on your own.
  • Debt settlement is not an easy process... but no pain, no gain.

What is Debt Negotiation and Settlement? Can you give me some debt settlement advice?

If you are drowning in debt, facing collection, or even facing bankruptcy, you need to address the situation now, before it gets any worse. Our debt settlement advice: debt negotiation and debt settlement are often better solutions to severe debt than bankruptcy.

What is Debt Negotiation and Settlement?

Debt negotiation, also called debt settlement, is the process of negotiating with your creditors to either establish a new payment schedule at a reduced interest rate, or a lump sum payment that’s significantly lower than the total balance. If your only other option is bankruptcy, your creditors may be willing to negotiate with you to ensure that they get something rather than nothing.

Debt Advice on How to Negotiate Your Debt

If you’re interested in debt negotiation, you can either hire a debt negotiation service to represent you to your creditors, or you can contact them on your own. If you want to try a do-it-yourself negotiation, follow this advice:

  • Be calm, clear, and convincing. Explain your situation in unemotional, professional terms. Remember, they’re not required to negotiate with you, so crying or screaming is not likely to move them to help you.
  • Don’t give up easily. If your creditor denies your request, explain to them why settling would be beneficial for them. Their priority is their bottom line and you must make it clear that the offer is in their best interest. If your request is still denied, do not agree to anything before you hang up the phone.
  • Send a debt negotiation letter. The letter should be professional and clearly state your arguments. Send it by certified mail and keep copies of all your correspondence.

If you’re not comfortable negotiating with your creditors or don’t achieve a settlement, you can hire a credit counseling or debt settlement service. For a fee, they will negotiate for either a low lump-sum payment or a small number of monthly payments toward a reduced balance at a significantly reduced interest rate.

Although it might seem odd to pay a fee to save money, experienced debt negotiators will save you far more than the cost of their fee. They know which creditors are willing to negotiate and how much of a settlement they will accept. Due to their network of relationships, they can settle debts you couldn’t on your own. Due to their experience, a professional negotiator will not be intimidated or scared by threats a creditor can make that would freak out the average person.

Things to Remember When You Negotiate

Whether you negotiate on your own or hire a debt negotiation service, keep the following things in mind:

  • The amount you can afford to pay. This should be a reasonable amount and often 40-60% of the total debt. Low-ball offers will be rejected immediately.
  • Creditors aren’t required to negotiate. They often will, if the next option is bankruptcy, but don’t expect them to make it easy for you.
  • Negotiation is a process. When you negotiate, you make an offer and your arguments. Expect them to make a counter-offer and counter-arguments.
  • You’re negotiating with a person. If you’re friendly and professional, they will be as well. Explain your situation in personal terms without becoming emotional. Listen to their arguments and answer them clearly. Your job is to convince them to see your side. Their job is to convince you to pay more. If you both play your roles properly, you’ll reach an agreeable settlement.

Negotiating debt is difficult and scary for most people, but it can be done. If you don’t succeed on your own, hire a professional to do it for you. You can get help for your debt.

Learn about additional ways to get out of debt, and use our new, free Debt Coach tool that will help you find the best way to get out of debt.

Comments (112)


Donna C.
Nashua, NH  |  January 30, 2012
I believe my total credit card debt showing on my credit report contains a lot of fees and interest charges. Do I have to pay those or am I legally only responsible for the actually charges? And how can I find that out, when I requested charges total they sent me a statement (Law Firm collection) I am trying to settle, I have been making the agreed monthly payment - agreed to last year. But would like validation on the debt. Thank you
Bills.com
January 30, 2012
Your credit report is not an accurate accounting of your debt to the creditor. You can send a validation letter, although it does not seem that you actually are in doubt of the debt. You should insist on receiving a detailed accounting of the charges and payments on the account. The creditor should provide you the relevant documents relating to your debt, including the details of the various charges.
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Donna C.
Nashua, NH  |  January 30, 2012
Do I have to pay all the fees they have tacked on? thank you for your answer
Bills.com
January 30, 2012
There is no yes or no answer to your question that applies to everyone in all situations. In some cases, the extra fees are reasonable and are according to the contract signed by both parties. In other cases, the interest may exceed state usury limits, the fees are punishments that do not relate to the actual costs of the delinquency, and the other charges are made up out of thin air. In debt settlement, everything is subject to negotiation, including fees beyond the original balance due.
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Donna C.
Nashua, NH  |  January 31, 2012
So are you saying that the application which I filled out for the credit card is a contract? for I only signed a contract and I have been told by a few people that the "Application" can not be held as a contract am I being mislead? Thank you for your time
Bills.com
January 31, 2012
The answer depends on the specifics of the credit card application in question. Those I have seen and signed are contracts. However, every time I get a new card, there is language on the new card and the accompanying letter that by signing and activating the card, I agree to all of the issuer's newest terms and conditions. So my receiving and activating my card creates a contract, too.

I cannot say for certain that your credit card issuer structures the signing of its contracts like mine and others I have seen, but if I had to guess, I would say "probably."
John L.
Southbury, CT  |  January 17, 2012
I have a defaulted private student loan. It's gone through a collection agency and back to the original creditor. They've taken wages from a co-signers bank account without notification and the creditor will only accept a lump sum that I'm unable to afford. I'm worried I might have to declare bankruptcy, is it worth it to hire a debt negotiation service? Will they be able to help?
Bills.com
January 18, 2012
Discharging private student loans in a bankruptcy is only possible if you meet a very strict hardship criteria. In any case, even if you were able to discharge your student loan debt in a bankruptcy it would not solve the problem for your co-signers, who are currently being garnished or bank levied. Garnishments, levies, or liens for private student loans can only occur after a court judgment has been issued, which apparently has happened.

I recommend that you read the Bills.com article about default on a private student loan. Also, read about debt relief. You will find out about various options available, including a debt settlement. Keep in mind, however, that once a judgment has been obtained, it is much harder to reach a negotiated settlement.
Julie K.
Sierra Madre, CA  |  January 06, 2012
I just got a garnishment letter from an old Home Depot credit card. I assumed debt when I divorced and was making payments to them thru a checking account deduction. I wasn't receiving statements form HD and suddenly the payments stopped. After numerous phone calls I was told the debit was paid. Now roughly 8 years later I've got a garnishment for $8000.00 from $2000.00 (paid off) debt. What can I do? I live in California.
Bills.com
January 08, 2012
If you received a garnishment letter, then that means a court judgment has been ordered. If the debt was either paid off, or past the statute of limitations, then you would need to make a defense in the court case. I recommend that you speak with a local lawyer regarding the measures you should take to remove the garnishment and cancel the debt.
Joy D.
Wellington, CO  |  January 05, 2012
I negotiated a debt on a defaulted loan over the phone, but said that I wanted a letter in writing prior to making any payment. When I received the letter, they payoff amount was significantly less than the amount agreed upon over the phone. Do I go with the written letter, or will they come back and try and sue me for the remainder?
Bills.com
January 05, 2012
Impossible to answer your question without reading the letter. Does it contain words like, "settlement" or "resolution"? If the offer letter is clear that your paying $X is a final amount paid to complete the creditor's claim of $Y against you, then the collection agent or original creditor is promising to forgive the remainder in exchange for your payment.

If the offer letter is vague as to it being a final settlement between you and the creditor, then you were sent an offer letter for essentially nothing.
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Joy D.
Wellington, CO  |  January 05, 2012
Yes, the letter is titled Settlement Offer Agreement - Payment Plan. It lists a monthly amount to be paid over the next 36 months, and states that upon receipt of payoff, they will recognize this debt as settled in full; and that once all funds have cleared, their records will be adjusted to reflect the settlement of the account..
Bills.com
January 05, 2012
What you described sounds like a typical settlement contract. One thought: Ask about a pay for delete if you are still negotiating with the collection agent or original creditor. Otherwise, if the negotiator on the other side made an error and offered you far less than you agreed to verbally, then you may want to leave the agreement as-is.
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Joy D.
Wellington, CO  |  January 05, 2012
Thanks! I think I will leave this where it is.
Benito P.
Seattle, WA  |  January 04, 2012
Because of a chronic illness I was discharged of my debt in 2005 in Hawaii. Then in 2008 I bought a $10,000 house in Texas where I homestead. My illness came back in 2009 and unable to work I accumulated a debt of about $20,000 in 7 credit cards. Collectors changed hands and the situation has quieted down. lately I received a letter asking for payment of $8900 plus interest and fees from a law firm for a debt originally from Washington Mutual Bank that became Chase then a debt collector. I did not respond to the letter. I could probably sell my house and settle the debt to 50% with all the creditors. Since I am not receiving anything from the other creditors should I take the risk of been sued and wait the two years left for a SOL protection. Should I negotiate with this law firm only and take the risk of losing two years of SOL? Please help.
Bills.com
January 04, 2012
Consult with a lawyer who has consumer law experience before you sell your Texas property or negotiate a settlement to any of your debts. You wrote, "... was discharged of my debt in 2005..." This give me pause. The word "discharge" is usually used when discussing a bankruptcy. Did you file bankruptcy in Hawaii? Was your debt discharged? If the answers to my questions are "yes," then your discharged Hawaii debt is canceled and may not be collected.

The Texas homestead law makes it impossible for creditors to file a lien on your home if the home is worth less than the homestead amount.

Negotiating a debt will not restart a state's statute of limitations. Consider a debt settlement program.
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Benito P.
Seattle, WA  |  January 06, 2012
Yes, I filed bankruptcy in 2005. This is a new debt due to my illness, bad economy and hike in fees from creditors in 2009 that caused me to default. You are right that my home is protected from collections. I am low income. I could only settle with one collector at a time at no more than 50% since the amounts of dept have been inflated too much. Or should I wait for the two years to pass before the SOL kicks in?
Bills.com
January 06, 2012
Visit the Bills.com Debt Coach for an online, no-cost, no-nonsense assessment of your debt resolution options.

The statute of limitations is a affirmative defense and not a bar to debt collections in most states. Read the link I just mentioned to learn more about what a statute of limitations means.
Melissa K.
December 01, 2011
When attempting to work out a settlement should I work with the balance due when the account became delinquent or the balance with all the interest and fees that have accumulated? Does the answer change if I am working with the original lender vs an agency that has purchased the debt?
Bills.com
December 01, 2011
Negotiating with a creditor will vary from case to case. The more that you have to give, the more the creditor will want to take. In general, the original creditor is looking at the whole balance, whereas the collection agency very likely bought the bad debt at a discounted rate. Negotiate at a low price, going down from the balance with usual interest rates. However, you can expect the lender or credit agency to start by demanding the full amount due, including all interest penalties and fees which legally can be charged.
Ashley H.
Sacramento, CA  |  November 09, 2011
I recently graduated from school and have been unemployed for three months. I am barely getting by on unemployment, have no assets except an old car with 200,000 miles on it. Now capital one's attorney is suing me for 4600 plus interest and court fees. I was just served the summons and have three weeks to answer. I am most likely going to file bankruptcy soon (when I can afford a lawyer). I want to call their attorney and try and negotiate something even though I'm broke. It would be ridiculous for them to not accept at least $50 each month at least, instead of paying court fees and win a judgment against me when they can take nothing from me. I have consulted with attorneys but cannot afford one to help me. Is it possible to file a motion to dismiss the lawsuit as well if all they put on the summons is the last four digits of my account number with no documents attached proving my connection to the credit card?
Bills.com
November 09, 2011
I think filing a motion to dismiss is an excellent tactic. Call your county bar association and ask for the names of the organizations that provide no-cost legal services to people with low or no income in your area. Make an appointment with one of the organizations, and bring all of the documents and letters you have regarding the debt to your meeting. The lawyer you meet will advise you accordingly, and help you draft a motion.
Lynn M.
Brookline, MA  |  September 14, 2011
Did I just make a huge mistake? I have defaulted on 3 credit cards this year because I relocated for grad school, expecting to have a full time income and then only finding low paying hourly work. A year later, I have finally secured full-time employment and want to clear up my credit history. All three accounts are held by law firms who specialize in debt collection. I called the original creditors first, and they told me who they sold my accounts to. I spoke with one who told me that my balance was $3800 after fees. They pressured me to tell them how much I could afford to pay this month as a lump sum. I named a price of $2500, thinking that it was crazily low. They accepted, and I agreed to do a check over the phone next week. My biggest concern is getting my accounts marked as paid/settled on my credit history, so that it can start to improve. I wish I would have seen this site before making calls. Any advice for handling the other two? Was it safe to make this kind of arrangement over the phone? I'm not sure that I can afford two more lump payments - I owe $2200 for one, and another for $7200.
Bills.com
September 15, 2011
The issue is not so much whether you made a huge mistake, but where to go from here. Clearly, there are some negative effects from defaulting on your debts, as you are seeing. Your credit rating has taken a hit that will take a couple of years to repair and you are facing collection calls.

Start by reading some tips on negotiating debt. While it was reasonable to negotiate over the phone, make sure to get any agreement in writing, before you send money, so it is clear that you are settling the debt and bringing it to a $0 balance.
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