Debt settlement is possible, and here are some helpful tips

The average household in the United States has a boatload of debt, and it just seems to be getting worse. Statistics show that the savings rate among Americans is the lowest since the Great Depression. People have piles of debt and don’t know what to do about it, and the matter has only gotten worse as new bankruptcy laws have taken effect. Making it worse is the fact that the major credit card companies have raised the minimum monthly payments to a point where many people will simply be unable to pay them.

If you can’t pay and you can’t file for bankruptcy, what can you do?

It may be possible, in some circumstances, to get your creditors to agree to settle for a lesser amount. This, in essence, is what many so-called “debt settlement” companies will do. They’ll talk fancy talk and ask you for fancy fees, but in the end, they will simply encourage your creditors to accept a smaller amount from you. Oh, and then they will get the creditors to share the saved amount with them, but they won’t tell you about that.

It turns out that you can, in some instances, negotiate your own debt settlement. All you have to do is call your creditor and explain to them that you simply cannot pay the bill in full. You then will have to ask them to settle for less. Here are a few tips that may help you.

• You will have to be late on your payments. Really late. This is not something to do if you just don’t like paying or if you are just a few weeks late on your payments. You have to be months behind to negotiate. Why? Because your creditors aren’t going to accept less if you are making your payments. They’ll just let you keep on paying. But if you are three, four, six, or more months behind, they will probably be more than willing to accept a lesser amount to settle.
• You had better be in a position to settle. Talking about settling for less is meaningless if you can’t actually do it. You had better have some real money on hand if you are going to offer to pay.
• Be aware that if you settle for less, the amount you save becomes taxable income. If you owe $5000 and the creditor agrees to accept $2000, then you owe tax on $3000 as if you actually earned that money. If you are in a 28% tax bracket, you could then owe an additional $840 in Federal income tax.
• Try to work out something quickly. While the company will probably be willing to accept less and less as time goes on, you are better off getting out of debt as soon as possible. Once you agree to pay, ask if your creditor will note “paid as agreed” on your credit report. They might as a condition of settlement. Otherwise, they will note that you paid less than what you owed, and that will remain a black mark on your credit report.

Negotiating with your creditors is a long shot, but it may help. And you don’t have to pay someone to do it for you. You can do it yourself, for free.

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