How to settle a debt and negotiate a settlement
Collectors have a limited amount of time to attempt collection
of payments. The first thing you should do is determine if
the statute of limitations for collecting a debt in your state
have passed. If the debt is older than the statute of limitations,
tell the bill collectors they are wasting their time by harassing
you for an un-collectable debt, as the original creditor or
the assigned collection agency cannot take you to court to
get a judgment.
Most unsecured debts can be settled. An unsecured debt is
a debt where there is no collateral. Unsecured debts include
medical bills, credit cards, department store cards, personal
loans, collection accounts, deficiency balances remaining
after foreclosure or repossession, and bounced checks. There
are a few creditors who will never compromise, but most will
take a less-than-full payment as settlement-in-full. You have
the natural advantage in debt settlement, because you have
something the creditor wants. You must hold out for your terms
until the creditor gives you what you want. Once you’ve written
that settlement check, your advantage disappears.
Get your terms in writing before you even
open your checkbook. Everything must be in writing and, even
then, you will probably have to push to make the creditor
live up to his end of the bargain.
Penalties and extra interest should be
your first target in reducing the debt Most companies would
be agreeable to get you to pay the original debt even without
the extra penalties they add on and will usually be willing
to waive these fees.
Time is on your side. The longer the debt
remains uncollected, the better your chances will be of getting
a good settlement. Eventually, the creditor will have to consider
the bad debt a loss in order to receive a corporate tax write-off.
This does not necessarily mean that they won’t pursue you
for the debt. The corporation may then collect on the debt
themselves, sell or assign the debt to a collection agency,
press for a judgment and garnishment, or temporarily ignore
the debt. The course of action chosen by the creditor will
vary widely between corporations and debts.
If you’re contacted by more than one collection
agency for the same debt, it means that the original creditor
has hired a secondary or even tertiary collection agency.
This indicates that the original creditor and even the first
collection agency has given up on you. A collection agency
that agrees to take your debt at this time will insist the
original creditor pay a fee (usually 50%-60% of what is owed).
Many secondary and tertiary agencies will take 33-55 cents
on the dollar. If the agency hasn’t been able to reach you
by phone but knows that you are receiving its letters, it
may be willing to take even less.
Never look too eager to settle. If you
tell a creditor that you really need to get this debt settled
to get into your dream home, you can forget any kind of affordable
settlement. The creditor will most likely insist on the full
Remind the creditor that the statute of
limitations is approaching on the debt and know when the statue
is up on each debt and be prepared to give the creditor the