How To Settle Your Debts For Less Than You Owe

Being in debt isn’t great and being unable to pay your debt is even worse. While no one likes to deal with debt collectors, doing so might help make your debt more manageable.

It might sound too good to be true, but you may even convince your creditors to settle for less than the amount you owe.

1. Try Settling Before An Account Goes Into Collections

If you haven’t paid your account in a few months but haven’t yet defaulted, it’s in your best interest to make an offer to settle, assuming you have money on hand. This is because once a debt has defaulted, the credit card company takes a loss and sells off your account to a collection agency. Once a debt goes into collections, it creates a second black mark on your credit report, on top of the hit for the originally missed repayments, which means a huge drop off your credit score.

2. Build Your Case

Prepare your negotiation strategy and gather the facts before trying to settle your debt. Do a thorough accounting of your income and monthly expenses because you have to explain to the creditors why you’re behind in payments and where else your money goes each month. Be honest and don’t lie.

Don’t invent a non-existent car payment or medical debt because collection agencies have reams of data on you so they’ll definitely know if you’re just making things up.

3. Grow A Thick Skin

Though collection agents aren’t allowed to swear at you or be verbally abusive, don’t expect them to be friendly and nice. So, don’t take everything they say personally, it’s just part of their strategy if they ever act mean or call you names. Don’t let their words get to you especially if you’re trying to scrape up enough for a lump sum settlement, which could put you for months of such conversations.

4. Start Haggling

Collection agencies have been known to inflate the amount you owe by rolling in fees and penalties. So, make sure you’re starting with the original balance as your baseline when negotiating and don’t just agree to the first offer the collection agent suggests. While some debt collectors may let you make monthly payments, the discount on your original debt won’t be as much.

You’ll have more leverage if you negotiate a lump sum payment.

5. Get The Agreement In Writing Before You Pay

If you agree to settle your debt, don’t send any money to the collection agency until you get a faxed or scanned letter saying they’ll accept your payment and that the pay off will relieve you of any future legal obligation for your debt. Just make sure that you have cash in hand if you agree to a settlement because you’ll have to send over the money within a day or so once you’ve received a written agreement.