11 Aug POWER!
Being in business is about the bottom line. The business of credit, financing, and loans is no different. Creditors and lenders typically do all they can to avoid writing off debt. They know that with the proper motivation people can usually come up with some way to pay off their debts under the right circumstances. Debt settlement is a negotiated agreement between a borrower and a lender, financer, company, or institution to consider a debt resolved or “settled” upon payment in full at a lesser amount than what is actually owed. This is an alternative to other forms of debt management and resolution such as payment plans, budgeting, spending schedules and the like.
When you owe more than you are able or willing to pay, debt settlement may appear to be an attractive alternative. If you care about your credit history and FICO score, don’t wait six months or more until the account has been charged off. A charge off is a note that is reported to credit bureaus indicating that the creditor has very little confidence that you will ever pay the debt. This will hurt your credit score and blemish your credit history.
Take the initiative as soon as possible by contacting your creditor and making arrangements to pay the debt. Even when requesting a debt settlement, you may still be able to pay in increments or installments, which is even more accommodating to you! Not only will you end up paying less than what you owe, but you may also have the benefit of paying a little at a time.
Contacting your creditor and making a payment arrangement or debt settlement agreement is the first step. However, it is important to note that what you don’t know may still hurt you. Your creditor is unlikely to share with you the negative impact that settling may have on your FICO score. While the creditor is happier to accept some payment than no payment at all, they can still legally list the account as “settled” or paid less than the amount owed. This indicates to future lenders that you may be somewhat of a credit risk and is a red flag on your credit report. Ultimately this can cost you in the form of less affordable interest rates and difficulty securing future financing.
Prior to agreeing to settle a debt you need to know that you still have a few cards to play. While you may owe the balance on your account, the lender is at somewhat of a disadvantage because all they can really do is wait and hope for you to pay. This is your POWER! Use this as leverage to negotiate the things you want before agreeing to the final settlement amount.
Standard industry practice is for collection calls to be recorded, particularly when there is an attempt to collect a debt. Know that there is proof of what you have requested the creditor to agree to do. Be sure to request that creditors agree to stop any further collection efforts including emails, letter, and phone calls that can be flat out annoying! Find out exactly how the settlement will ultimately be reflected on your credit report and make sure it happens by checking your credit report.
Once you pay a debt settlement you should check your credit report after 30, 60, 90 days to ensure that the settlement is reported according to the terms that were agreed upon. Creditors are required, by law, to report debt settlements. Unfortunately, in some instances, they fail to do so resulting in accounts that report as delinquent indefinitely.
Debt settlement is one of many ways to manage and resolve debt that has become difficult or impossible to pay. However, you should never feel as though you don’t have options. Be confident in leveraging the POWER of negotiation.