DIY Debt Settlement

Debt settlement should not be used as a tool to get out of your debts, as there are credit consequences and there can be legal consequences as well. But it can be helpful for those who cannot pay their full debt and who also want to avoid bankruptcy. Because hiring a debt-settlement firm can cost you thousands of dollars in unnecessary fees, you might be better off making the settlements yourself and saving the money to help pay your settlements.

Stop Paying and Save

To get a lender to agree to a debt settlement, you need to have money to offer, according to Bankrate. A lender is not going to make a settlement and give you months to pay it off; it is going to want its money within days. Therefore, you should stop paying the bill you want to settle and start saving money to pay that settlement. Keep in mind that there will be a time constraint once you decide to stop paying this bill. After 120-180 days of non-payment, lenders usually charge off a debt and hand it over to a collector. You can also settle with a collector, but that money will not go to your original lender. If you want to have your money go to the original lender, you should have the money saved up for a settlement within six months.

Initiate Contact and Make Your Offer

You need to let the lender know your situation and that your only options are settlement or bankruptcy, according to Charles J. Phelan of ZipDebt. Ignoring the lender's calls until you are closer to charge-off might make a lawsuit more likely, especially if your debt is large. Talk to the lender, but let it know you cannot accept a payment plan and that you need a settlement. You might have to have this conversation several times in the months leading up to your charge-off, but as that date approaches the lender might be more willing to compromise.

Get It in Writing

Once the settlement has been agreed upon, do not pay immediately; instead, you should ask the lender to send you a copy of the agreement on its letterhead, according to Jeff Boulton of RiseAboveDebtRelief. Make sure that the agreement states that the debt will be discharged once the settlement amount has been paid and that it also states the settlement amount. Write a check instead of allowing the lender to take the funds from your bank via electronic transfer. Keep the canceled check in a file with your settlement papers.