How to Negotiate With Debt Collectors for a Lower Settlement

If you are caught under a mountain of credit card, unsecured and/or secured debt, you may only have a few options for relief. One of these options is bankruptcy. This is costly and severely damaging to your credit. A second, more preferred method is called debt settlement. This is the process by which you reduce the total amount you owe. This is also damaging to your credit rating, but it also can put you back on track to rebuilding it.

Instructions

1

Calculate your debt-to-income ratio (DIR). Creditors will not even think about negotiating a settlement unless you can prove that you are unable to pay your bills as promised. Most lenders want to see a DIR well above 50 percent. To calculate your DIR, divide the total of all monthly credit-reportable bills by your gross monthly income. This will show your ability to repay your debts.

2

Devise an argument and strategy before contacting lenders for a settlement. Income is only one part of the deal. Most creditors will demand a reason for them to agree to accept less than what is owed. Common arguments include: disability, unemployment, medical emergencies and reduced employment. Make sure you have documents supporting these claims.

3

Handle all correspondence and negotiations with your creditors through the mail or over email. This will create a paper trail you may need in order to hold your creditors accountable in the future.

4

Draft an initial letter requesting a settlement. This letter can be used for all lenders. Include the reasons for your request, include copies of all documents relating to the settlement, and provide copies of your income documents. Reference your name, address, Social Security number and account number in the letter. Ask for a 50 percent reduction on your bill.

5

Counter the creditor's offer for settlement when you hear back. Make sure to reiterate your argument. You may even suggest that you can make a one-time, lump-sum good faith payment to show your willingness to begin repaying your debts (this may be required anyway).

6

Get the final debt settlement offer in writing. Do not accept an offer until you have the details in a new contract. Review this agreement with a trusted advisor--like your attorney or accountant. Sign it only if you can meet the arrangement.