Debt settlement is a problem that seems easy enough to handle on your own — sort of like painting the house.
I recently painted the inside of my house. I spent three weeks finishing three rooms, spilled a few pints of paint on the carpet and the cleanup is ongoing. I still have some trim work and two rooms to go.
But for the outside of my house, I hired pros. They finished the job in three days, trim and all, and cleaned up after themselves. A perfect job. But their professional assessment of my paint job: I needed to be better prepared if I was ever going to finish. Lesson learned.
Debt settlement is the same as handling a massive paint job on your own. Whether you’re trying to settle credit card, medical or even private student loan debt, it pays to be ready.
Steps to Consider When Handling Debt Settlement
Here are five suggestions that might help you avoid making a mess out of the situation:
- Get a copy of the Fair Debt Collection Practices Act (FDCPA), which spells out what collection agencies can and can’t do to collect a debt. There are plenty of provisions that protect you from being harassed. For example, if the collection agency is after you about a car loan, there are specific times of day they can and can’t call. They can’t visit you at work. They can’t lie about your debt or the penalties you will incur for not paying. If they violate any of the rules, you can sue. First, you must know the rules of the game, so look up the FDCPA.
- Know exactly how much you can afford. This is an obvious starting point, but one commonly overlooked by people too anxious to settle their debt. They jump into negotiations, get 20 percent knocked off their principal and start rejoicing, only to find out that’s still more than they can afford. Determine how much a month you can pay and stick to that throughout the negotiation process. It is not unreasonable to think you can get the principal reduced by a substantial amount. Whatever amount you settle on, be sure you can comfortably afford it.
- Making a deal over the phone and sending a check out the next day, puts all the risk on you. The person at the other end could treat that as a payment on the principal and claim there never was an agreement. Ask for a written agreement before you do anything. Read it over carefully and understand payments, due dates and penalties before you sign it.
- Keep track of every communication. Many off the harassment techniques mentioned in the FDCPA takes place over the phone. It will pay off handsomely to have everything documented.
- Be patient. Collection agencies are good at intimidation. They rush debtors into a process with subtle and sometimes not-so-subtle threats about the consequences for not paying. Play the negotiating game at a slow pace. Make them explain everything to you in detail. If you drag the process out long enough, they may improve their offer to get something out of you. Patience definitely pays off.