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Debt Settlement Negotiation

Sayali Bedekar Patil May 12, 2019
If you've been saddled with an unmanageable amount of debt settlement installments for a long period of time, it is time you involve yourself in some debt settlement negotiation.
Debt settlement negotiation is an effective way of settling your debts, as it serves as a quick relief solution. It is a type of negotiation, that allows the debtor to write off some of his debts, and divide the outstanding balance into easy installments.
These installments are manageable amounts, contingent upon the amount of debt outstanding, and the number of installments you have chosen to repay the amount in. To summarize, debt settlement is a management method to clear away long outstanding debts.
Most unsecured debts can benefit from this settlement program, making it an easy, do-it-yourself negotiation. Be it the credit card process, or business or medical bills payments, everything's easier with this effective program.
A few liabilities that cannot be cleared off through the settlement are student debts, alimony or maintenance payments, outstanding tax payments, and active car loans. For everything else, you will need to learn how the process of settlement works.

The Process

With long outstanding payments, the lender understands that the credit agreement is not financially suitable to the debtor.
Since the debtor has something that the creditor wants, the creditor becomes more flexible with his rate of repayment and the percentage of receivable amount. Data from the SEC filings show the following correlation between the age of the account and the fall in the amount received from the debtor.
Age of the Outstanding Debt Amount Received Per Dollar of Debt
Recently Charged Debts 6 to 7 cents
Slightly Older Debts 1.5 to 2 cents
Years Old, Out of Statute Debts 1 cent or less
Most offers start at 25% or less, i.e., 25 cents per dollar of debt. Before you feel bad for the creditors, here's how the credit collection mechanism works. We will take the example of the credit card industry.
Debt collection agencies buy the debt accounts (many outstanding payments or low probability of payments accounts) from the credit card companies for something as low as 7 cents to a dollar. So when you start your negotiation at 25 cents per dollar, they are still making a profit.
The credit card companies are out of this profit picture, as they have sold their accounts to the collection agency to avoid collection hassles. What happens with the credit card company then? If they do not receive payment with a few reminders, these companies sell their defaulted accounts for low values.
The remaining losses are written off against the current year taxes. The process thus allows the creditor to receive at least some amount from a previous fully delinquent account.

Must Do's

The following are the major points to remember when you are involved in a negotiation process.
  • It is best to correspond via letters or emails when involved in such a deal, as the paper trail will help you in case of future disputes. Try to avoid talking to the collection agency on the phone, unless of course you just want a feel of things. Even for snail mail, make it a point to get it registered with a receipt request.
  • If you do call them on some issue, try starting the conversation by asking their office address or fax numbers. Keep the conversation crisp and precise, if you want to avoid nasty conversations.
  • Before you get your checkbook ready, get the terms written down in an agreement. Verbal agreements do not hold in court, so follow the Latin term Caveat Emptor (let the buyer beware).
  • Keeping records helps, because it is not for the collection agency to remember you by name or account. This ensures your chances of getting a good bargain.
  • As with all legal disputes, you will need some proof of correspondence. Keep a copy of all the letters you have sent and received concerning the issue, and save yourself a lot of unnecessary trouble later.
  • When and if you do call a collection agency, keep a log of the conversation timing and the person you spoke to. Keep your fingers crossed that the high employee turnover at collection agencies does not affect you, i.e., the person you spoke to is available again when you need him.
  • Follow up all telephonic agreements with a written, registered letter, with all the telephonic conversation details repeated.
  • Keep a close eye on any extra interest or fictitious penalties that the collection agencies may have charged you with, to increase their profits. Most companies are just happy that you are even paying a small part of your original debt, let alone the interest, so through a good settlement deal, you can make these points very clear.
  • As rotten as that sounds, know that time actually pays in the credit arena of things. The longer your debt goes uncollected, the better your chances of getting a good deal. Trust me, you will get better write offs and lower installments for the amount payable, the longer you stretch your credit repayments.
  • Suppress your conscience for a while, and try not to appear too eager to settle your dues. Keep negating all your creditors initial offers. Don't let the creditor have the upper hand, and eventually, you are sure to reach an affordable settlement.
  • Last but not the least, don't forget to talk about your credit rating with the creditor or collection agency. An unpaid account under your name is as bad as a paid one, if no efforts are taken to negotiate your credit ratings. Get them sorted out.
There are a few tricks to knowing how much you can get away with, through negotiation. If more than one agency contacts you about the same debt, it signifies that the others have given up. The new agency will obviously be prepared with a better write off offer for you. Hold out for this. Do use the threat of bankruptcy wisely.
Under this threat, the creditor knows that he can get more out of you without it than with it, and so, he will give you a better deal. Don't lie about it though, your creditor usually knows more about you than you think he does, so beware. Remain patient despite the negatives, persistent, despite the failures, and calm, despite the wasted attempts.
Disclaimer: This information is for reference purposes only and does not directly recommend any specific financial course of action.