How to Legally Settle a Debt to a Loan Company

Debt settlement is big business in the United States. The inordinate amount of consumer debt in the US has left many consumers with few options to avoid bankruptcy. One of these options is debt settlement. While this process will leave your credit scarred for at least seven years, it can help to relieve you of extreme credit debt. Legally settling a debt is somewhat challenging, but can be accomplished.

Instructions

How to Legally Settle a Debt to a Loan Company

1

Pull a recent copy of your credit report. See Resources for a free copy. Review your payment history on the account in question.

2

Stop paying on the account. While it's almost never a good idea to stall payments on any account as late payments are the absolute worst for your credit score--debt settlement will be a much larger scar on your report. Collectors are much more likely to settle if you're currently behind on your account.

3

Determine how much you'd like to settle for. Keep in mind, you might need to come up with a lump-sum to pay off the account in a settlement.

4

Speak with collection representatives. This will be a delicate dance. Collectors are paid to collect as much as possible from an account. Usually this means setting up a payment plan for the FULL amount due, not a settlement. You'll have to put on your negotiating hat.

5

Take notes and record conversations with collectors, if possible. Keep all correspondence sent to you by your creditor. This information may be crucial in the later stages of negotiation.

6

Begin to talk dollar figures with your creditor after you've missed at least one payment. Creditors want to know how much they'll get and when.

7

Agree to settlement terms. Do not be pressured into a dollar figure. Make sure the negotiation is a two-way street, but be prepared to compromise. Have the settlement letter sent to you.

8

Review the terms of the settlement with a trusted advisor--like an attorney, financial advisor, or friend. If the terms seem sound, sign the settlement agreement and begin making payments.