Negotiating with creditors can be an intimidating process, but it doesn’t have to be daunting. Knowing your options and exercising the right tools can be a great help in the debt settlement process, and successful credit negotiations may even result in your getting completely debt free without resorting to bankruptcy or other measures. Here are a few basic tips for successfully navigating the debt settlement process.
Offer Lump Sum Payments
Pursuing a delinquent account can be troublesome for a creditor; they must send the account to collections, file the suit, pay the litigators, court costs, and then attempt to collect on whatever judgment is handed down. What this means is that approaching a creditor with a lump sum payment of even 20% of the debt amount may be a tempting incentive to that creditor; it means money in their pocket and the avoidance of a great deal of hassle. This tactic is by no means foolproof, but does serve as a good starting point. Drawbacks include the need to have up to 50% of the total debt amount available as ready cash.
Hint at Bankruptcy
Without saying it outright, hinting that you may be forced to file for bankruptcy can be a powerful tool for debt settlement. Unsecured creditors (such as credit card companies) know that if a person files for bankruptcy, all unsecured debts will be discharged and the credit card company will lose all that was owed to them. If the credit card company fears you will file for bankruptcy, they will be more likely to accept a lump sum offer of even 20% as better than nothing.
Drawbacks to Lump Sum Settlements
The need for ready cash on hand to make a settlement offer means that, in every likelihood, you are skipping making payments on your debts to gain that cash. While the account is delinquent in this way the creditor has the right to sue you in collections, garnish your wages, and withdraw from your accounts. So the tactic comes with a good deal of risk, and you must be prepared to assuage creditors’ suspicions and essentially cross your fingers that they do not decide to take legal action.