How to Reduce Your Debt Safely & Legally

If you're hesitant to answer the phone because of constant calls from debt collectors or afraid to check the mail lest you discover yet more bills you cannot pay, working with your creditors to reduce your debts through debt settlement or credit counseling may be your best option. Credit counselors can create a budget-friendly repayment plan for you to help you manage debt while debt settlement allows you to take control of your financial situation and negotiate on your own behalf. Both methods of debt reduction are perfectly legal, but it is important that to stay safe you avoid debt negotiation companies. The Federal Trade Commission warns against hiring a debt negotiation firm as the potential for scams is high (See References 1).

Instructions

Debt Settlement

1

Review past letters from your creditors for any settlement offers they may contain. It is important to know which creditors are prepared to settle with you and for how much.

2

Evaluate how much you can afford to pay toward a settlement each month. Make a list of your monthly bills and compare that list to your income. Any income left over each month after your primary needs are met is disposable income and can be directed toward paying off a settlement.

3

Call each of your creditors. Ask to speak to an account representative who is authorized to negotiate a debt settlement.

4

Tell the account representative that you want to discuss the settlement you were offered or ask if a settlement is possible. Explain your current financial situation and why you cannot pay the debt in full. Negotiate for a debt settlement plan that you can afford to pay.

5

Request the terms of the settlement in writing before sending payments to the company. To reduce your debt safely, you must protect yourself in the event that the company does not acknowledge your settlement agreement once the debt is paid.

6

Make payments toward your settlement agreement on time every month.

Credit Counseling

7

Check for a credit counseling agency in your area that is affiliated with the Association of Independent Credit Counseling Agencies or the National Foundation for Credit Counseling (See References 2).

8

Make an appointment to speak to a credit counselor. Bring copies of your bills and pay stubs to help the counselor review your financial situation.

9

Wait for the counselor to contact your creditors and attempt to negotiate a debt management plan (DMP) that fits your budget.

10

Review the proposed DMP. If you agree to the plan, pay the credit counseling service's fee and sign a contract agreeing to pay the requested amount every month.

11

Make regular payments to the credit counseling agency in accordance with your DMP until your debts are paid in full.