How to Fix Credit & Settle Debts

You have finally realized that no matter what you do your income will not cover your expenses and you're slowly getting in over your head in debt. If you have to decide every month whether food is on the table or the credit card bills get paid, it's time to sit down and come up with a plan to settle your debts and fix your credit. It won't be easy.

Instructions

1

Write down every unsecured loan you have, the payment amount, balance due and when you made the last payment. Unsecured loans are not attached to an asset unlike a car loan. A car loan is secured against the car. If you don't make your car payment, the car will be repossessed.

2

Review the amounts that are owed. Compare the amount that is owed to what you can afford to pay. You will need some money on hand to pay off the loan at a lesser amount. Sell assets, cash in bonds, sell stocks or use your savings. Most creditors will not accept less than 50 percent of the balance. Save the money you would have paid on your credit cards and debts for six months and use it as well as savings and cash from asset sales to settle the debt.

3

Check to see when you made the last payment. If the creditor believes there is a chance that they can collect the entire balance due, or that you have assets they can obtain, or that they can garnish your salary, they may not be willing to settle. If you've only missed one or two payments or aren't more than 90 days past due, that's a sign that they may be able to collect more than if you're six months past due. Creditors are willing to settle a debt for a lesser amount if they believe the debtor will declare bankruptcy and they won't receive anything.

4

Call each creditor and make an offer to settle the debt for 25 percent to 30 percent of what is owed. The odds are they won't accept it but it's better to start low and raise your offer. The person you initially talk with may not have the authority to agree to a settlement and will most likely insist that you make a payment. Don't agree to the payment. Keep asking to talk to someone who does have the authority. It may take several phone calls. Get the agreement in writing.

5

Pay the amount that you've negotiated as soon as you've agreed to and receive the written agreement. The creditor can still take legal action until they've been paid, even if they've agreed to a settlement.

6

Start improving your credit by making your mortgage and car payment on time every time. Debt settlement will substantially decrease your credit scores. Obtain a secured credit card, use it every month and pay off the entire balance every month. After 12 months ask to have the deposit that secured the card returned to you.