How to Settle Debt for 25% or Less

Settling unsecured debt for no more than 25 percent of the balance will require some shrewd negotiating. After all, the deal would result in a whopping 75 percent savings for you, and a potentially large business write-off for your creditor. Despite that, credit card companies and other creditors often are willing to deal, as The New York Times reported in 2009. The newspaper said come card companies were settling delinquent debt for as little as 20 percent of the balance.

Instructions

1

Find out how much you owe on your account by getting a recent billing statement. If it's a really old debt, check your credit report for the balance along with contact information. Get a free copy of your credit report from Annual Credit Report (see Resources)--a website setup to issue free reports as required by federal law.

2

View your credit report to determine the date of the last payment. Generally, credit card companies and other creditors will not consider settlement agreements until you fall at least three months behind. Usually after six months the companies will close your account and sell it to a debt collector.

3

Call your credit card company or debt collector when you are at least three months behind. Ask when the account is scheduled to be charged off. Settlement offers can change as the account becomes more delinquent, and your negotiating leverage improves as the card company nears its internal deadline for resolving the delinquent account.

4

Make a second call to your card company when you are two weeks away from the account being charged off. Offer to pay 20 percent of the balance. The creditor may counter at say, 50 percent. Politely end the conversation and call back the next day. Stand your ground until the last business day before your account is scheduled for charge-off. Then offer to pay 25 percent of the balance. Some card companies may allow you to pay the settlement amount over 90 days, with the first payment due in 30 days. Get everything in writing. Go on to the next step if you're settling a really old debt held by a debt collector.

5

Save enough money to offer a 25 percent lump-sum payment. Many of the debt collectors will want a lump sum or will try to get you to pay a larger amount in exchange for payment arrangements. Call the debt collector and tell him you have come into some money and can settle the account for 25 percent of the balance. Make the agreement and get the details in writing. Then make the payment to settle the account.