Debt Settlement

Types of debts to be settled

  • There are two basic categories of debt secured an unsecured you are only allowed to do settlement for unsecured debt:
  1. medical bills
  2. credit cards
  3. department store cards
  4. personal loans
  5. student loans
  6. bounced checks
  • Unsecured debts have nothing attached to the loan promised as repayment. Unsecured loans are typically given to people with good credit due to the fact credit shows good faith of paying. Creditors are more willing to settle unsecured debts as they have no way to guarantee they will receive anything from you.

Making the deal

  • You are given the upper hand in debt settlement, because you have the cards the creditor wants. Don't fold when they first tell you no. Maintain calm and don't lose it or get angry. It's usually best to correspond with them via letters, so you have a paper trail of all your moves. Keep a positive attitude at all times that the creditor will take less money then they say they will.

  • Most secondary creditors pay or receive literally pennies on the dollar for the debts on which they are trying to collect. The amount that companies pay for bad debt depends on the type of account and its age:

  1. Debts that have recently been charged off are apprx: 6 to 7 cents on the dollar.
  2. Accounts that are slightly older and have probably been attempted by a in house collection agency are apprx: 1.5 cents to 2 cents on the dollar.
  3. Years-old, close to statue are apprx: A penny or less.
  • Keeping in mind apprx what they paid you should start your offer at 25% or less. Remember the original creditors have written off the debt. The profit goes directly to the secondary creditor.
  • You can also propose that you will pay them more if they will remove it from your report. Make sure you have this in writing prior to making the payment. 

Tips to negotiating

  • Its best not talk the secondary creditor on the phone. If you would prefer to talk to them on the phone make sure you and the secondary creditor have access to email to insure written agreements. Don't be afraid to hang up if they get mean with you. You can always refer back to writing them via certified mail.
  • When calling them, start off by getting the name of the agency, physical address, name of representative, and the name of there supervisor.
  • Get your terms in writing before you even consider making a payment.  Never give the creditor the benefit of the doubt. You want to obtain everything in writing so if the creditor does not live up to the agreed upon deal you have paperwork backing you up.
  • Send all correspondence via registered mail; receipt requested Your local post office can assist you with this.

  • Keep a copy of every letter you send to the creditor.
  • Follow up insure you call to verify the action was completed, check your credit reports to make sure it has been updated as agreed upon
  • Penalties and extra interest are typically fictitious check your states usury laws. Creditors will try to tack on extra interest keep in mind they paid pennies on the dollar for this debt.
  • Never look too eager or give to much information. Take your time to reach an agreement. Don't let it slip that you need to settle the debt because you're buying a home, car, or anything else. This gives the creditor leverage to ask for the full amount. Don't accept the first, or even second, settlement offer. Never give the upper hand remember you hold the cards.
  • Use the threat of bankruptcy. It's in your best interest to make the creditor believe you have little or no money. If they believe you are filing bankruptcy they know they will receive even less or no money.