Debt settlement is when a creditor agrees to accept less than the full balance for the debt. Settling your debts helps you to get out of debt faster without spending as much money as you would if you paid off the entire balance. However, there is an art to effective debt settlement.
Want to negotiate the lowest settlement amounts possible? Keep these five tips in mind:
1. Do not be afraid to haggle
In most cases, the debt collector with whom you are speaking has a lot of leeway over the settlement they can accept, but the collector also has a settlement average they need to protect.
For example, they may be allowed to settle debts at 50 percent of the debt's face value but may also have to maintain an average of a 70 percent settlement rate.
You don't want to be the debtor who helps the collector pull up their average. You want to get the best deal possible. Keep in mind that the collector's first settlement offer is likely not the best offer possible. Make a lower counter offer and don't be afraid to haggle.
2. Don't give financial information over the phone
Bill collectors often ask questions about your financial state. They may say they are going to "update your file", but in reality, they have no right to your financial information.
If you tell them you have a retirement account, they will simply try to convince you to cash it out. In other cases, they will try to convince you to call friends and family for help – they may even try to convince you to do a conference call to ask your rich old aunt for a loan.
To avoid those situations, keep all financial info to yourself so the collector has no ability to leverage information or badger you for a higher settlement.
3. Save your settlement offers for the end of the month
Although every collection agency varies, many of them run a monthly fiscal cycle. In most cases, debt collectors work on commission, and only the money collected over the course of a month adds to their total for the month.
If it is the last or second to the last day of the month, a collector on a monthly commission schedule is more willing to take a lower debt settlement offer than a collector at the beginning of the month. At the end of the month, they simply want to increase their total as aggressively as possible but near the beginning of the month, they are typically more cautious and less willing to accept lowball settlement offers.
4. Don't take a split settlement you cannot afford
A split settlement is when you split a debt settlement over several months. For example, if you owe $1,000 but you take a split settlement of $600 over three months, you will pay $200 a month.
Do not agree to a split debt settlement unless you know you can do it. Otherwise, you will lose the offer. Continuing with the above example, if you pay $200 successfully twice but miss the third installment, you will lose your settlement offer.
The amount you paid will still be subtracted from your debt but once you miss a payment, you will likely have to start the settlement negotiation process again.
5. Enlist professional help
If you just cannot seem to get a settlement offer you like, enlist professional help. Professional debt negotiators negotiate low settlement offers every day. In many cases, when a debt collector speaks with a professional, they are more willing to negotiate because they know the person on the other end of the line is going to play proverbial hardball. In contrast, they may not be as easy on the debtors themselves.
To learn more, contact a debt settlement company like Vine & Williams Bankruptcy.