Debt settlement can be a good way to dig yourself out of a financial hole, and debt validation is always a wise thing to do before agreeing to pay a debt. But don't offer to settle a debt until you know that it's yours. If you don't validate a debt before offering a settlement, at best, you might lose some leverage with your creditor; at worst, you may end up paying a debt that isn't yours or that you're no longer legally obligated to pay.
Debt Settlement
Paying your debts in full is the right thing to do. But if the unexpected happens and your income takes a hit, it's easy to be overwhelmed by debt. If making just your minimum payments isn't reducing your debt load quickly enough, you can reduce your debt by offering creditors a cash settlement: You pay them 30 percent to 60 percent of what you owe and they cancel the balance.
Debt Validation
If your original creditor turns your debt over to a collection agency, the federal Fair Debt Collection Practices Act gives you the right to request validation of your debt within 30 days after the collection agency first contacts you about the debt. You have the right to request proof that you owe the debt, as well as the name of your original creditor and the amount of money that you allegedly owe. Because collection agencies sometimes go after the wrong people for debts, ask debtors to pay debts that are no longer covered under the statute of limitations, or claim that your balance is much higher than what you actually owe, validating a debt before you pay it is a smart financial move.
Why Validate First
If you send a letter that simultaneously asks a debt collector or creditor to validate your debt while also offering a settlement, you limit your settlement options and leverage. For one thing, by offering to settle the debt, you imply that it's a debt that you actually owe. But if you're truly unsure as to whether you owe the debt or about the legitimacy of your creditor's accounting, it doesn't make sense for you to offer a settlement until you understand your obligation.
Making Your Offer
Once the debt is validated, you can then make a settlement offer. When you make your offer, keep two figures in mind: One is the most that you can afford to pay; the second is a lesser amount for you to begin bargaining with. If your creditor requests more money after your first offer, you have some cushion to work with. Make sure that you get your creditor's agreement to a settlement offer in writing before you actually send it any money.
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