If you have a credit card or personal loan debt that you can't pay any more, you might be able to settle it for a portion of what you owe. For creditors and collection agencies, debt settlement is a business decision. If they think that getting something from you now is in their best interests, they'll settle to eliminate the risk that you'll default and they won't get anything in the future.
Formulate your explanation for why the creditor should allow you to settle your debt. For instance, if you know that your monthly expenses and your income are equal, you can make an argument that you won't be able to make monthly payments, but that you can use savings to pay a lump sum instead.
Get the information on your debt in front of you. At a minimum, you'll want to have the amount you owe, the last due date, the account number and the name and phone number of the creditor or collection agency.
Call your creditor and let them know that you cannot pay the debt but are willing to settle it. Explain your situation and make an offer. There's no harm to making a very low offer, since your creditor can always say no. It's entirely possible that you could end up settling your debt for less than half of what you owe. If you're working with a collection agency, bear in mind that it probably bought the right to collect your debt from your original creditor for pennies on the dollar, so just about anything it can get will be profitable.
Haggle back and forth with your creditor or collection agency. If you can't get a reasonable offer from them and they aren't yet threatening a lawsuit, you may have time to professionally end the call and call back at a later date. As you go back and forth, keep detailed notes on who you talk to, what they say and what you say to them.
Accept an offer when you come to an agreement with a collector or creditor that is fair and affordable for you. Request that the collector or creditor send you a written agreement that says, among other things, that your payoff will eliminate any of your legal responsibility for the debt and that the collector will report the debt as being paid to the credit agencies.
Send a payment to the creditor or collector with a signed copy of the agreement. To be safe, you may want to pay with a money order instead of a check so that the creditor doesn't get a copy of your checking account number.
It's never too early to try to settle a debt. If you can do it before you go into collections, you may be able to avoid having double damage done to your credit report as well. Frequently, you will need to be delinquent for the creditor to pay attention, however.
You may have more luck negotiating with a collection agency towards the end of the month since many of their agents have monthly quotas to reach and the person you work with might have extra motivation to add more money to her monthly total.
If you want help negotiating your settlement, some not-for-profit credit counseling agencies agencies can also help you. Even legitimate organizations may still charge fees, though.
Settling a debt for less than you owe is usually reflected on your credit report and can have a negative impact on your credit score. As such, you may be better off paying the entire balance if you can afford to.
If you aren't sure that you owe a debt, have the creditor or collector verify it for you.
- Jupiterimages/Photos.com/Getty Images