How To Negotiate Debt Settlement On Your Own

by Tina S. Rhodes

If you've ever been deep in debt, you know exactly how awful it feels. Being deep in debt feels like you’re trying to outrun a cheetah. You’ve got slim-to-no-chances of getting out of danger, but it’s fight-or-flight and so you need to at least try.

There’s something about the internet that just makes you want to be brutally honest. I don’t know if it’s the fact that I don’t have to look anyone in the eye while I share something embarrassing, or if it’s because I feel like sharing my mistakes finally means I’ve learned my lessons, but here I am, ready to share one of my biggest moments of financial “shame”.

Now, before I get into the nitty-gritty, I want to share that everyone makes mistakes financially, and shame does not need to be permanent! As long as you’re sorting out your past, you’re doing your best, and you don’t deserve to feel ashamed. Now, on with my story of negotiating my way out of credit card debt.

When I was 22, I really didn’t understand that credit cards are not free money… I know that sounds silly but I was broke and I really wanted to keep up with my friends. I figured as long as I could pay the minimum ($70) on my credit card every month, I could afford to live it up in luxury.

Turns out, I couldn’t even afford that $70 a month… Not to worry though! I decided to ignore the whole deal and just spend until the card didn’t work anymore. A true moment of brilliance on my end.

My next period of brilliance came in the form of just ignoring the bills, delinquency notices, and collections notices for roughly four years. This was a bad plan. My credit score plummeted, and I still couldn’t afford the bills. (Like I said, learn from my mistakes here.) Getting anxious when an unknown number calls you because you assume it’s a collection agency is no way to live. I felt like I was drowning and I knew in order to move forward I would have to clear my debts.

Eight steps to negotiate a debt settlement

  1. Acknowledge the debt. I know this seems obvious on some level, but it’s easier than you think to get caught in the cycle of debt by running and spending and running and spending. Once I owned up to my mistake, I started to see a path forward.
  2. Figure out where your debt is and who you need to pay. My debt had transferred from the original financial institution that issued the credit card, to a debt buyer (or a company that buys debts). So, instead of owing my bank roughly $7,000, I now owed a completely different company.
  3. Actually find out how much you owe. Since I had been ignoring my bills for so long, I genuinely didn’t know how much I owed. Once I realized I owed over $7,000, I actually felt surprisingly relieved. It was at least a solid number that I had to work with.
  4. Weigh your options when it comes to debt relief or debt settlement. If you owe multiple debts or a huge amount of money, you may want to consider looking into a debt relief or settlement option. I was fortunate enough to afford one lump sum payment to get me out of trouble, but of course there are other options if you need to space payments out.

Debt Settlement Companies

Debt settlement programs are run by for-profit companies. These companies negotiate on your behalf with your creditors in order to get you a “settlement” and resolve what you owe. The settlement is another word for a “lump sum” that's less than the full balance of what you owe. To make that lump sum payment, the program asks that you set aside a specific amount of money every month in savings. Debt settlement companies usually ask that you transfer this amount every month into a secured account to accumulate enough savings to pay off a settlement that is reached eventually. Further, these programs often encourage or instruct their clients to stop making payments to their creditors.

5. Get in contact with your creditors. Once I got everything sorted, decided on a lump sum repayment, and determined to whom I owed money, it was time to reach out.

6. Don’t just get on the phone and pay right away. Before I handed any money over to the debt collectors, I asked if they had any deals they could offer me. This is the “settlement” piece of this equation. I know it seems like a choosing beggar kind of move, but I just wanted to know if I could save any money. And it turns out that they were willing to settle the debt for 50% of what I owed! I went from owing $7,000 to $3,500 with one simple phone call.

7. Get your settlement in writing. Again, before I paid the company I asked them to please mail me a letter with the final settlement amount in writing for my records. This is so important. You need proof of your negotiation in writing in order to be absolutely sure that you don’t underpay or misunderstand what you owe.

8. Pay that bad boy off as you are able. Like I said before, I was able to pay in a lump sum, so once I got my confirmation letter, I called, paid with a debit card, and was able to wash my hands of the whole thing. If you have to pay in monthly installments, make sure you keep on top of it! This is your chance to get a restart, and you do not want to mess it up.

Debt settlement process tips

Just because you’ve paid your debts, they don’t magically disappear from your credit report. Your paid debts will stay on your credit report for 7 years. It’s tough to feel like you’ve done your due diligence, paid your debts, and you still might have trouble renting a home or getting an ideal APR on a car, BUT when it comes to wiping out debt, there’s no time like the present! Seven years will pass quicker than you think, so you might as well live debt-free.

Your credit score will not immediately change massively. Similar to the fact that your debt stays on your report, your score will also not skyrocket back up. Still, it’s better to be debt-free and work on rebuilding your credit, than it is to be in debt.

Debt settlements can actually be worse for your credit than a full-price payment plan. It’s usually worth it to save the money if your debt has already gone into collections, but your best bet is probably to never get in that spot. Learn from my mistakes!

Final thoughts

When it comes to settling credit card debt, you have to weigh which actions are most worth it to you in the long term. Some choices will impact your credit score negatively, but will ultimately impact your overall life pretty positively (mostly because the relief of being out of debt is possibly one of the best feelings out there). Whatever you do, don’t stay still!