Debt Settlement

DIY Debt Settlement

What You Need to Know before You Try to Go it Alone

Overwhelming debt can send you searching for relief. You need to get your monthly payments down, and making minimum payments for the next 30 years is as overwhelming as looking at your current balances. If the thought of paying double or even triple your charges through a long term repayment plan stresses you out, a credit card modification program, may be the route you want to take.

The next question is: Do you need to hire a Credit Card Modification company in order to achieve the debt relief needed. With many do it yourself (DIY) options available, some consumers consider handling this process themselves, rather than hiring a professional. After all, if you can spend a few hundred dollars on a DIY kit, why pay higher fees for someone else to complete the task for you?  Before you drop a few hundred hard earned, much needed dollars hoping for a quick fix at a low cost, you should carefully consider the following things.

Suitability: A solid understanding of finances and credit is required for the DIY route. You will also be required to contact creditors, conduct negotiations and prepare settlement agreements. DIY kits are available that will help with some of these things, but you will need to manage the process.

Having the time, negotiation skills and persistency to contact each creditor and negotiate a reduced payoff amounts are essential skills needed. You must also save enough money to negotiate a settlement, which takes discipline. While the process is lengthy and time consuming, you can save a significant amount of money over hiring a professional to complete all the legwork.  Here are some of the benefits and challenges you need to be aware of when going it alone.

Benefits of DIY Debt Negotiation

  • Save money you would spend hiring a professional which can be used to pay off debts faster.
  • DIY kits walk you through the process giving step by step directions.
  • You have greater control over which debts are negotiated and in what order.

Challenges of DIY Debt Negotiation

  • Time consuming and lengthy process. Debt settlement companies estimate total debt payoffs will take 3 to 4 years. It may take even longer to settle debts yourself.
  • Skill level. High levels of knowledge about finances, credit and debt collection are required. You must also have strong negotiation skills in order to get the best deal available to you.
  • Knowing the rules of the game. Credit Card Modification companies work with credit card companies and collection agencies on a daily basis. They understand which cards negotiate for what amounts giving you the lowest possible payoffs on each account. By trying to do it yourself, you could end up paying more because you are not privy to this information.
  • Negotiating your own debts can be an emotional process and to be successful, you need to be able to manage the stress..  You will be speaking to aggressive debt collectors on a regular basis whose job it is to collect the full balance or as much of the full balance from you as possible.  They have a personal financial incentive in this effort, and they do this every day, so they understand the best ways to extract the most money from people in debt.
  • Professional Credit Card Modification companies have long standing relationships with many credit card companies, debt collectors and debt buyers.  They work together to their mutual benefit and ultimately the benefit of the consumer that wants to reduce their debts.  It is through these relationships that they typically can deliver more favorable terms than you may be able to negotiate yourself.
  • Preparing legal documents with no loopholes will eliminate future debt collection efforts. If you don’t know how to prepare these documents to protect yourself, you may find yourself in future debt collection actions on accounts you thought were already paid.
  • Know what other things you can negotiate for. Many debt buyers or collection agencies will offer to have a negative collection account removed from your credit report for paying a certain amount or within a certain period of time.  The practice of “Pay for Removal” is growing in the debt collection industry today.  Negotiating this in addition to a settlement may help your credit score recover quicker.  Knowing how and when to ask for this concession will determine the likelihood of receiving the benefit.

How to Find Success with DIY Debt Settlement

Step 1: Assess your debts and list them in order of priority. Priority is generally ranked by interest rate or balance, with the lower balances and higher interest rates usually going first. . You also need your income and full financial picture clearly understood for negotiations.

Step 2: Start saving money. A tax refund, company bonus or other large payment might be used to negotiate a settlement. You may be faced with the dilemma of continuing to pay your credit card minimum payments in order to set aside money. Creditors will be less likely to provide deeply discounted settlements on current accounts.

Step 3: Know when to negotiate and when NOT to negotiate.  You need to know the exact stage of delinquency or date of charge off for every account you will be negotiating each time you speak with a collector and you need to update the status of each account every week.  If you don’t know the most opportune time to negotiate a given account with a given creditor or collection agency, you will likely not make the best deal for yourself.  That means not only the most opportune time in the account delinquency cycle but also the most opportune time of the month to propose settlements with collectors.

Step 4: Contact creditors and negotiate a deal. This often takes many calls. Have your debt situation in place as well as a strategy to convince them to accept a lower payoff amount.

Step 5:  Document your hardship.  You need to make a compelling case for yourself and why you are deserving of a settlement.  Good documentation is critical to getting the best deal.

Step 6:  Know what to say and what NOT to say.  When you are speaking to a creditor or collector on the phone, you need to be careful about what you are communicating to the person on the other end of the line.  Say the wrong thing, and your account might end up in legal collection or a “Cease and Desist” status, which could also send the account right to an attorney for further action.

Step 7: You need to know who is collecting the debts you owe and who is the current owner of the debt at the time you are negotiating each debt.  Debt moves from collection agency to collection agency in the collection cycle.  Creditors place and recall accounts between agencies to ensure the most effective collection efforts.  Debts also get sold to debt buyers after charge off.  A debt buyer may purchase your debt for just pennies on the dollar.  Knowing when this happens and knowing when your accounts moves from one collection agency to another is critical to negotiating the best settlement.

Step 8: Get everything in writing. Do not make any payments until you have signed the contract. Determine the amount of debt forgiven, as this may be considered taxable income when you file taxes.   You also need to understand exactly what the current balance is comprised of including principal, interest charges, late fees, penalties and legal fees.  Depending on your state, and when these fees were added to your balance, may determine if you are negotiating in the most favorable way to reduce the amount you will pay.

Step 9:  Understand the specific laws in your state as they relate to debt collection, wage garnishment and legal actions your creditors may take against you.  Understanding these laws will give you a better or worse negotiating position depending on where you actually live.

Step 10:  Be careful about WHERE you actually save money.  If you are unaware that a creditor obtains a default judgment against you on one of your outstanding accounts, they may be able to attach and garnish funds from your checking or savings account to satisfy the judgment and wipe out your debt negotiation fund.

DIY debt settlement is an arduous process requiring specific knowledge and excellent negotiation skills.  With the right skills, industry knowledge and a high level of patience and determination, you may save money by doing it yourself, but if you are not prepared, emotionally unattached and well educated as to the rules and practices of the debt collection process, you may end up doing more harm for yourself than good.  If you find the process to be as overwhelming as your debt, a professional credit card modification company may be a better option for you and they will handle all of the legwork and legal work for you as well.

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