Negotiating Debt With Original Creditors (DIY)
How would the consumer know if the account is still with the original creditor?
You can tell by the fact that you are still getting letters and bill statements from the original creditors, but if you are not receiving letters, you can always just call the creditors. If the account has been passed on to the collection agencies, the creditors would actually refuse to speak with the consumer, but if it is still with them they would entertain settlement talks.
Accounts may go into collection agencies if the payment is delayed by more than 90 days.
When should the consumer try to settle accounts?
This varies per creditor
Some settle for the lowest percentage whe the account is between 150 and 180 days past due.
Others settle for the lowest percentage after the account has been with several collection agencies.
Creditors would not negotiate if the consumer’s account is current; they would refuse to discuss settlements unless the consumer is at least three to six months behind.
How does debt settlement work?
Banks usually forgive 20%-75% of the consumer debt because it is better to collect something rather than nothing; although they would not announce it.
The consumer can stop making payments to the creditors to put aside money on his/her savings account. Once the creditors agreed on a settlement you can pay it with the money that you have been saving.
When the one-time payment amount is finalized and the debt has been paid off, the creditors then report the account to the credit bureau as “settled.”
What are the advantages of going at it alone?
It is cheaper. Debt Settlement companies, on the average, charge 15% of what the consumers owe the creditors. This or 20-25% of the settlement amount.
Some credit card companies do not like working with debt settlement companies. There are many instances in which the creditors pass the account to an attorney upon learning that the consumer enrolled in a debt settlement program.
Creditors also do not want to deal with collection attornies. They complicate matters and they charge high fees based on what they collect.
Most creditors would rather collect something rather than nothing.
Creditors do not like the term bankruptcy because then they would receive no repayment at all. Some debt settlement companies advise the consumer to threaten the creditors with a declaration of bankruptcy because they almost always yield.
What are the disadvantages of doing it on your own?
Many debt settlement companies are not transparent. Typically, debt settlement companies charge 15% of the debt but others charge a percentage of the debt savings (25%) upon settlement, plus monthly charges and an initial sign-up fee. Then there are those that charge a flat monthly fee throughout the length of the program.
There are cases in which the creditors agree on a partial payment and then all of a sudden would turn back on their word, and hire the services of a collection agency, to retrieve the remaining balance. In many states that practice is considered illegal, the creditors cannot come after the consumer for the balance, although they may attempt to.
Partial payment means just a “Settled” rating but the consumer could always try to negotiate a better rating. Although of it may help to know that “Settled” is better than “charged off”.
Don’ts
Do not disclose where you work or what your bank is.
The consumer may say “no comment” if the creditor asks where he/she maybe contacted. This is necessary to protect the consumer from the possible collection from a judgment. This is one of the first processes that a debt settlement company would advise its customer too (they usually requests the customer to change the address, phone, and email address to that of the company).
Do not pay your settlements with a personal check
Top protect the consumer’s financial status and other bank account numbers, he/she is advised to not issue a personal check. The consumer may issue a cashier’s check or money order instead from a different bank.
Do’s
Keep a copy of the money order or cashier’s check
Put simply, it is proof of transaction, and should any dispute arise, the consumer has something to hold up against the creditors.
Record the conversation. Creditors do not give out a written copy of the agreement but for security purposes, the consumer must somehow have proof that the agreement happen. If the consumer is going to record he/she must inform the other parties that the conversation is going to be recorded. The consumer must log the phone calls, write down the name of the person who took the call, and note down everything. The two party state. In some states, it is acceptable that only one party on needs to give permission to have the conversation recorded.
Can I still settle my debt if I’m currently being sued by a debt collector or creditor?
It is still possible to negotiate even in the middle of litigation or after a judgment has been filed.
What is Favorable Negotiation?
The idea is to be able to lower down the payment to a manageable number so that it can be paid off as quickly as possible. One of the best ways to achieve this is to get the creditor to wave finance charges, late and over the limit fees, which usually amounts to 30-40% of the total debt. Some creditors may accept but some will refuse. If that happens, decline politely and buy time. In many instances, the creditor will send you a more favorable deal within a few weeks. Collection agencies are paid to collect debts, so their goal is to get as much as possible as quickly as possible.
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August 21, 2011 
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