DIY debt settlement is a popular option for people who want to get a reduction on their current balance. In the past, people thought that this debt solution is only effective if they get the help of a professional debt settlement company. However, some people are scared of pushing through because of what they hear on the news about debt relief scams.
In 2010, the US Government Accountability Office released a report about these debt settlement companies. The report, published on Senate.gov, discussed how they posed as fictitious consumers in debt to find out how debt settlement companies offered their services. It was revealed that 17 out of the 20 companies they called violated the upfront fees that is prohibited by the law. According to the report, only one company said that they will only collect fees after they have successfully settled the debts of the consumer.
It is these reports that overshadow the fact that debt settlement can help. It scared consumers into using what could have been an effective debt solution.
What you have to realize is that the additional laws and strict implementation has lowered the number of debt settlement scammers. There are a lot of legitimate and trustworthy companies that are sincere in helping consumers get out of debt.
And if you really do not want to work with a professional company, that is okay. You can always opt for DIY debt settlement. But before you continue settling debts on your own, it is important for you to know three things.
Know who you are settling your debts with
The first is knowing who you will be settling with. The only way that you can achieve debt reduction is by negotiating with credit card companies. To win in any negotiation, you have to understand who you are haggling with.
Here are some important facts about creditors that you have to know when going through DIY debt settlement.
- Debt settlement lowers the profit of creditors. While debt settlement provide credit card companies flexibility in working with you, this debt solution will lower their profit from the debt you owe. After all, you will ask them to allow you to pay only a portion of the debt and have the rest forgiven. You should expect that they will haggle with you quite aggressively at first. But if you are truly in dire financial conditions and you cannot pay off the total amount that you owe, then you just have to be patient and honest with the creditor about it.
- Creditors haggling and collecting with you are not out to attack you personally. It is purely a business transaction. So if they are giving you a hard time, be patient and know that it is you who cannot fulfill the payment agreement. You are asking them a favor so always try to stay on their good side while communicating.
- Your debt reduction is a small part of a bigger picture. It is also important to understand that credit card companies come after you because they are concerned about how your debt will affect the value of their stocks. They have to think of the welfare of their shareholders. If a lot of consumers are defaulting on payments, this will make them want to cut back their losses early on and make it easy for you to settle your debts. But if it is just you, they can drag it out. This is another reason why you should not think their refusal to decline your DIY debt settlement proposal is a personal attack.
- They do not like bankruptcy. Credit card debt is one of the first to be discharged in bankruptcy so you can expect that they do not want you to declare yourself bankrupt. This is actually one of the best arsenal that you have when negotiating your own debt reduction. Use it wisely because creditor know that their chances of getting paid will be even less if you opt for bankruptcy
Know your rights before you settle your debts
The second thing that you need to know before you proceed with DIY debt settlement is to understand your rights. If your debt is passed on to a debt collections agency (which is usually what happens), you need to know what the law says about collecting delinquent debts. Some of these collectors can be abusive because they only get paid if you pay more of your balance. So if you start negotiating with them for debt settlement, you can expect that things will get ugly.
According to the consumer information page on FTC.gov, these are the important facts that you should know about debt collection.
- They are not allowed to harass you in any way. Some collectors will use threats, bluffs and abusive words to get you to pay up. Do not be intimidated because these are just empty words. They should not harass you if you are trying to settle with them. Just be polite and let them know that you know your rights and that you should be treated properly.
- They are prohibited from making false statements. Some of these collectors who refuse to accept your debt settlement proposal can threaten you with false statements. Things like throwing you in jail or garnishing your Social Security benefits, etc. These are strictly prohibited by the law. You should also know that there are debt collectors who pose to be representatives of a credit card company. Make sure you are sure that you are haggling with an authorized representative.
- Collectors are not allowed to reveal your debt information to anyone but yourself, your spouse or your legal representative. They can only call your employer, neighbor or colleagues to get information about where to contact you.
DIY debt settlement means you are not relying on experts to tell you what is your right or not. This is why you need to research this on your own. Read up on the Fair Debt Collection Practices Act to know more about your rights.
Know the 10 steps to settle debts on your own
Now that you know your opponent and your rights, you are ready to learn about what it takes to settle your debts on your own. There are 10 important steps that you should follow.
- Research on your collection cycle. It is important to understand the collection cycle because part of debt settlement is defaulting on your monthly payments. This is not something that you will do intentionally since debt settlement is really for those who are in dire financial situations. Know when your debt will be considered late, delinquent or charged off. In most cases, negotiating a debt that is charged off has a higher chance of being approved for debt reduction.
- Prepare the lump sum payment. Investopedia.com defines debt settlement as offering a big one-time payment to cover your existing balance in return for having the rest of the debt forgiven. If you do not have this amount, you need to save up for it. If the amount you can afford to pay monthly is smaller than the minimum, just put it in your savings instead of sending it to your creditor.
- Wait for the creditor to call and explain your situation. Tell your creditor that you cannot afford to pay all of your debts because of an illness or a recent job loss. These are usually the credible reasons to ask for debt reduction. Please note that you should check that you are talking to an authorized representative of the creditor.
- Expect that the calls from collections will increase. At this point, you are probably in a financial situation wherein you are not sending any payment towards your debt. Expect the collection calls to get ugly but keep in mind your rights. Just be patient and consistent with your story.
- Start mentioning your debt settlement proposal once your debt is charged off. By this time, you should have the lump sum amount to offer as your settlement fund.
- Haggle with the collector and put everything that you have discussed and agreed on in writing. You should even take note of the date and time of conversations and the information about the person you are talking to.
- Agree to pay an amount that you can afford. While it may be intimidating, do not agree to pay something that you know you cannot afford.
- Ask them to give you a signed official document of the final agreement. Never send the settlement fund without it. This is your protection and proof that your debt should be marked off as a closed account.
- Send the payment to the collector or creditor.
- Check your credit report after a few weeks to make sure that your records are updated. If not, then call your creditor or collector so they can submit the changes to the major credit bureau.
After completing the DIY debt settlement process, your work is not yet done. It is important for you to know your to-do list after debt settlement like staying out of debt, monitoring your credit score, etc. The road to debt freedom is long and hard and this to-do list will help you make sure that you will never go through that again.