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Debt Settlement Advice

By Mark Cappel May 03, 2013
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unsecured line of credit and pay for delete
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.

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Comments (135)


Brian M.
Santa Clarita, CA  |  May 03, 2013
I have an old loan with Bank of Delaware and Understand that BofD has some legal Issues. How does that affect me?
Bills.com
May 03, 2013
If you are referring to First Bank of Delaware, that bank was dissolved in November 2012 after the Treasury Dept. and FDIC determined the bank failed to follow federal anti-money laundering statutes. According to a Treasury Dept. and FDIC statement, the Bryn Mawr Trust Co. bought some of the bank's assets.

Lenders consider loans assets. I would guess — note that word choice — that Bryn Mawr Trust Co. now owns the rights to your loan. I would be surprised to learn First Bank of Delaware's losing its charter to operate would mean your loan is forgiven or cancelled.
Joe Z.
Waltham, MA  |  March 16, 2013
Hi, I used to work in IL last year and got a job to relocate to MA recently. My IL apartment is charging me $2000 as a buy-out fee which I cannot afford - since I have paid them 2 month addition rent before I left. Now I have only received notice from apt management. As from the information here, MA would allow wage garnishment once the court order got domesticated (if any, in the future). My question is, if they try to transfer this case into a law firm to sue me and domesticate (if they win) the case to MA to wage garnish me, will it cost them more than negotiate for a lower amount with me right now? what would they most likely to do? Thanks!
Bills.com
March 17, 2013
Joe, there is no one-size-fits-all answer to your question. Each creditor will make its own assessment whether it is better to settle or to pursue collecting on the debt aggressively. I don't think you have anything to lose by offering a settlement, but there is no way to know in advance whether the creditor will accept, reject, or counter your offer.

The legal costs that are due get passed on to the debtor, so the added costs need not be a disincentive to the creditor. They are added into the balance of the debt. For example, the legal docs will read "balance includes principal, interest, attorney fees, filing fees & court costs."
J H.
T/o Wappinger, NY  |  October 23, 2012
From NY and took out a payday loan with US Fast Cash (USFC) in the amount of $500. I was to pay them $650 in return (APR 438%). Sh*t happened and I wasn't able to pay it off come payday. What I didn't realize since I failed to read the fine print was that every payday they'd take out the finance charge of $150. Of course I didn't have enough funds to cover these transactions and logically I was getting hit with NSFs. This happened 9 times already. Now they want me to pay the $920. Should I just bite the bullet and try to make a payment arrangement with them? They keep pulling when there's nothing to take, but in no way would I be able to pay them off without the charges piling up.
Bills.com
October 24, 2012
Read the Bills.com resource New York Payday Loans to learn more about New York law and payday loans, and how to resolve these loans.
Matthew M.
Memphis, TN  |  April 25, 2012
I have a personal loan for around $1,200 from back in 2002 that I defaulted on. A judgment was issued on this back then and I went to court and agreed to monthly payments. Again, I defaulted on those payments and haven't been in contact with Wells Fargo for nearly 8 years. I am in position now where I am trying to resolve old debts to get into a home. The balance for the debt is $4,100 per my credit report. Can I still attempt to negotiate a lump sum settlement for an amount closer to the original balance?
Bills.com
April 25, 2012
Yes; you certainly may try to negotiate a lump-sum settlement, even post-judgment and after all this time lapsed. Just beware that the lender can refuse to settle and can step up collection efforts, once you "shine light on yourself."
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Matthew M.
Memphis, TN  |  April 25, 2012
Thanks for the information! Question: If I am able to negotiate a settlement over the phone, should I still sent the pay for delete letter or just request that they mail me a letter. Also, when/if the judgement is settled either by lump sum or monthly payments, how would I have the judgement removed. I ask because I just finished paying off a judgment for CapOne and it is still showing on my CR.
Bills.com
April 25, 2012
Consult with a lawyer in your state to learn your state's rules for giving the court notice of a judgment satisfaction.

See the Bills.com article on the FCRA to learn how long a judgment may appear on your credit report.
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Tina G.
Des Moines, IA  |  July 18, 2012
I have 7 payday loans, yes i am an idiot, i am trying to negotiate payments but everyone wants something every payday. I live in Iowa, here are the companies: American Web Loans Bottom Dollar Payday Plain Green Loans US Fast Cash Cash Call Great Plains Loans Fast and Reliable Cash
Bills.com
July 19, 2012
A first step is to contact the Iowa Division of Banking, the entity that regulates payday lenders in Iowa. Their phone number is 515-281-4014. It may be the case that not every one of your lenders is licensed in Iowa. My research indicates Iowa outlaws Internet payday loans. Make sure no lender charges you interest or fees beyond what Iowa law allows.
Thach N.
Santa Ana, CA  |  April 24, 2012
Hello, I have a wage garnishment notice that will take effect in 2 weeks. I have taken money out of my retirement fund to pay this debt in its entirety. My fear is that the firm representing the creditor will not follow through with closing out my judgment and ending the garnishment once they get my money. $20,000 is a lot of money for me and I would want to be sure that once the firm of Hunt & Henriqes gets my money, all the legal paperwork will be done correctly. Can I do this on my own? Two attorneys I have spoken to seem to think I can do this on my own or maybe it is not worth their time to help me? I am obviously willing to pay for help in making sure this is all done correctly so I may move on with my life. Thanks for your help.
Bills.com
April 24, 2012
You should be able to do this on your own. I suggest you first get the agreement in writing before making the payment. The agreement should specify the matter will be settled, and a dismissal filed, upon receipt and clearance of payment.
Rozalyn S.
Lithonia, GA  |  April 18, 2012
I have a 9,000 dollar balance on a Citibank card which I have made regular and on-time payments, (but only minimum payments). I haven't used the card in over five years. I recently went back and calculated the total amount borrowed and paid in interest so far and I have paid-back everything that I borrowed plus 19% interest which is my annual APR. Yet, there remains a balance of 9,000. Does this serve as an argument in negotiation for settling under 50%?
Bills.com
April 18, 2012
I understand that you have made minimum payments and the total amount is more than the amount you borrowed. Minimum payments are a long and expensive way to pay back credit cards, especially at 19% interest rate. I recommend that you use the Bills.com minimum payment calculator to calculate your time to pay off and total interest expense if you maintain fixed payments instead of minimum paymnets.

Claiming that you meet your obligations by making minimum payments and paid more than what you borrowed, is not usually a persuasive argument with credit card companies. If you cannot make payments or wish to negotiate, then showing some sort of hardship is a more convincing tactic. If you are having trouble making payments, especially more than minimum payments then look into a debt relief option.
L G.
Pittsburgh, PA  |  April 11, 2012
I have over $22,000 owed to BOA, and have a 4.9% interest rate until I pay the balance off. I recently got a letter from DMB Financial to settle with my creditors. I have done the paperwork to have this balance included with DMB, but am really contemplating cancelling. DMB Financial will take 40% of whatever BOA agrees to settle with me for, and I have no idea what that will be. I am current with BOA, and able to pay them the monthly payment of $600, which is more than the minimum payment they require. It would be nice to see my debt with BOA settled, but I'm concerned about my credit rating never getting up to where it is now after I do this. It's a very hard decision! Any suggestinos? Is it better to call BOA myself to try to settle?
Sara S.
Lodi, NJ  |  March 26, 2012
I went to grad school and defaulted on my credit cards since I had to give up my full time job. I tried to speak with the companies but they were of no help. I settled one account and I'm trying to settle with one other company. However, I'm worried about making a mistake. They have said the following: In order to negotiate a settlement less than the full amount and since there are court proceedings in place (i haven't gone to court yet or anything along those lines but i suppose its to happen since they mentioned it) that they would like for me to send them a bank account statement stating that my bank account has not been levied. They want this in order for us to proceed with settlement. I refused to give them any information (bank account number etc) and they said as long as the letter just has my name and is from their letter head and it says no levy has been applied. Does this sound legitimate to you? I'm afraid that they might then try to levy my account or try to scam me in some way. Help please!
Bills.com
March 26, 2012
I recommend that you do not give them your bank account or information regarding bank levies. This should not be relevant to the settlement. Make sure that you have validated the debt. Make sure that your agreement is in writing.
Jim P.
March 20, 2012
To make a long story short I am in default with Discover card. The debt went from $3500 to almost $8000 and is now being handled by a local Michigan firm. Two years ago they started to garnish my state income tax return for a total of almost 2500 the balance but the balance has not gone down at all. A month ago they started garnishing my wages at 25% for another total of $600. At this point i can not afford to let this go on. I talked to some lawyers and they want me to file bankruptcy. I would like to settle but not real sure where to start I tried to talk to them in the past but never got anywhere. Any advise would be greatly appreciated.
Bills.com
March 20, 2012
First, read the Bills.com article Debt Settlement Advice to learn tips and tactics for negotiating debt with a creditor. Try what you learned on the page I just mentioned.

If negotiating fails, then follow the advice of your bankruptcy lawyer.
Mills C.
Cape Coral, FL  |  March 08, 2012
I have a second mortgage debt which is affecting my life and my credit. The home took over foreclosure, but the second mortgage is still my responsibility to pay according to them. Now the account when to a collection agency. The amount is $49,000 they gave me a bottom line of $8,000 to settle the account. $8,000 is way too much money I don't have. At this point what will you think i should do? What will be a lower offer i can offer them?
Bills.com
March 08, 2012
A negotiation is a back-and-forth. You can make a lower offer, one that you can afford to pay. The debt collector may or may not take it. Consult with a bankruptcy attorney to see if you're eligible to discharge the debt. If you are, you can use that as leverage to negotiate a lower settlement, even if you don't wish to file for BK.
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