Debt settlement is an agreement between you and your creditors to pay off amounts you owe them at a lowered rate. You benefit by not having to pay off an entire owed amount, and creditors benefit by not only getting paid, but not having to charge off your account or place you in collections. Prior to undergoing any debt settlement agreement with anyone, make sure you do 3 things first.
Pick the most urgent debt
You probably don't have the funds to settle with all your creditors, so choose the most urgent ones to negotiate with. You can choose these debts by checking the following:
- amount/interest owed
- length of debt
- collection notices
Essentially, the creditors who are getting ready to send you to collections and whom you owe the largest amount of money to are the ones you want to attempt a debt settlement with. Creditors you have low balances with or who are not charging you large interest rates with are easier to send smaller payments to until you can pay them off in full.
Have sizable funds ready
Your creditors will want either all the money upfront in order to agree to a debt settlement, or they will want a large down payment toward your lower payoff. If you aren't ready to make a sizable payment they may deny settling with you entirely. This can lead to your account being charged off or sent to collections which hurts your credit score. If you only have a small amount to pay right away, let them know this as you start negotiating a settlement rate. They may be willing to work with you if you send them a small payment every week until you can make a larger payment toward your reduced debt.
Pay other debts first
Make sure you can afford a debt settlement in the first place before you commit to any negotiation. You have other existing debts, such as household expenses, car payments, or rent, that need to be taken care of in addition to paying your creditors. Pay your other debts first so you realistically know how much money you have leftover for debt settlement. If you cannot pay bills and settle with your creditors at the same time, seek the services of a debt consultant, such as those at Vine & Williams Debt Management, to help you make the best use of your funds.
Debt settlement is a great way to help eradicate what you owe to creditors. Before you jump in with both feet and your wallet wide open, make sure you have funds ready, can afford the negotiations, and aren't leaving other debts ignored in settling. You don't want to put yourself deeper in financial trouble, and doing these 3 things can help keep your finances afloat.