1. Make a Lump sum offer. Realize that often if you are seriously delinquent or better yet if the debt has been sold to a collection agency you can often settle debts for 30 cents on the dollar or even less! Know your creditor- some creditors like Discover Card generally demand 70 cents on the dollar. Collection agencies who bought your debt in a bulk purchase with little to no documentation are often willing to settle dirt cheap.
2. Demand the account be closed. Sometimes if you ask the creditor to simply close the account, freeze interest and penalties, and put you on a payment plan of say $100 per month with no penalties and interest they realize you are truly desperate to get out of debt. If you are paying 29% interest you must immediately get out of that that arrangement or else you might never escape perma-debt.
3. Get any deal in writing. Don’t pay a dime until you get a deal in writing. Debts are often sold to third parties. Without any evidence of your deal the new purchaser may not honor your prior deal.
4. Keep calling back if your first offer is rejected. Just because you call and make an offer and hear “No” don’t let that deter you. Keep calling back until you hear “Yes”. Ask to speak with a supervisor. Although I do not endorse this strategy, sometimes falling behind on payments opens up more options. That option is often “Plan A” employed by debt settlement companies, which can lead to disastrous results.
5. Threaten bankruptcy if creditors refuse to work with you. You have to realize the creditors worst fear is that you file bankruptcy and they get zero. Use that fear to your advantage. Sometimes hiring a bankruptcy attorney to make that argument for you pays dividends.
6. Understand debt settlement companies don’t always help. Debt Settlement companies are in the business of making money. Usually that means your first few payments all goes to them as fees as you fall farther behind on your debts. Understand what fees you are paying. More importantly- realize you could do everything they do yourself.
7. Don’t pay 1 credit card and ignore others. What is the point of paying just 1 debt if that means you neglect other cards and they begin to sue you? Have a global plan to deal with all your debt at the same time.
8. Know the statute of limitations. In North Carolina the typical SOL is three years from the date of last payment. Don’t revive a dead debt by making a payment as that may renew a debt.
9. Expect a 1099 tax bill if you settle debt for less than the full balance. The dirty little secret of debt settlement is that when you pay less than what is owed you usually receive a 1099 tax bill and have to pay taxes on the difference. Factor that tax bill into your negotiation thought process. Sometimes you can point that issue out to either have the creditor waive the 1099 or to get a lower settlement number. Also if you are truly insolvent you may be a way to avoid tax liability by talking with your accountant about claiming insolvency.
10. Consult a debt settlement attorney if you are sued. If you have been sued seek legal counsel immediately. In NC for instance you generally only have 30 days to file a written response with the Court or else you may lose without the creditor even going to Court. If you have been served by the Sheriff or certified mail then you likely have been sued.