The worries that come with owing substantial debts to others can be dramatic. You might not have the income necessary to cover those expenses, and the added interest charges will only make a difficult situation worse. But you can resolve this problem by entering a debt settlement plan with your creditors.
A debt settlement plan involves negotiating with your creditors to resolve your debts. In this situation, you will establish an agreement where you will pay a lump sum of funds to your creditors to cover those debts. The amount you’ll pay will be a portion of whatever you owe.
This process is useful when you’re trying to manage your expenses, but be cautious with what you enter into. It can take years for a debt settlement process to go forward.
Why Would Anyone Settle With You?
You might worry that you won’t be able to enter a debt settlement plan, but you might be surprised at how many creditors are willing to join one. Creditors are often willing to settle with debtors because they know it is better to collect a portion of what someone owes than to never get anything back from that person. But remember that a creditor is never under any obligation to agree to your settlement effort.
Review Your Eligibility
To start, you’ll have to see if your debts are eligible for settlement. There are a few rules of thumb to see surrounding your debt settlement eligibility:
Meet the Creditor’s Requirements
The next step involves looking at what a creditor will ask of you when getting your debt settlement plan ready. While many creditors are willing to help people, not everyone is easy to work with. Some creditors have rules like these points:
Contact the Creditors
The next step for how to settle your debts is to consult the creditors to whom you owe money. You’ll need to do a few things to make this plan work:
How Much Should Your Offer Be Worth?
A good rule of thumb is to state that you’ll pay a lump sum of about a third of your outstanding balance. But don’t assume that’s all you’ll spend, as your creditor will likely ask for a higher amount. The goal of the negotiation is to come to a middle ground you can agree upon.
A good idea is to aim for a lump sum payment worth about half of what you owe. There’s no guarantee you’ll get to this point, but it is worthwhile.
Establish Written Agreements
Once you get an agreement with your creditor, you can set up a written agreement. The listing should include details on how much you are paying, deadlines for payments, and other critical terms. Be sure you carefully review the document to ensure you’re getting a suitable plan ready.
You’ll officially enter your settlement plan once you and the creditor agree to the terms. But be sure you follow the instructions for repayment, as failing to do this can result in the creditor returning to the old collection terms.
Can You Work With a Debt Settlement Company?
One other option you have for settling your debts is to contact a settlement company for assistance. A settlement company can help you plan a suitable effort to pay your debts.
It’s often easier to have a settlement team work for you because it understands how various creditors work. The debt settlement company can consult a creditor and offer a proposal for how you’ll manage your debts. In many cases, a creditor will be more willing to work with such a settlement team because when you hire one, you’re showing that creditor that you mean business and are serious about a settlement.
But you will still have to pay a fee to hire a debt settlement company for help. A settlement team will typically charge a fee ranging from 15 to 25 percent of whatever debt you hold before the settlement. For example, if you had $20,000 in debt and settled for $9,000, you could still pay an additional $3,000 to $5,000. While you’ll still pay less to manage your debts, the added charge for a company’s services can still be a concern.
A Final Note
A debt settlement plan can help you resolve your debts for a fraction of the cost. You can talk with your creditors for help in managing your expenses. There’s also the option of hiring a debt settlement company, although that will cost extra to employ. Remember that resolving your debts can help you keep your financial situation from becoming worse, but it will require plenty of effort to make it work.