Debt Settlement Advice

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Mark Cappel

UpdatedSep 16, 2024

3 min read

Key Takeaways:

You can negotiate settlements on your debts.
Determine if you want to use the services of a debt settlement firm or try to settle debt on your own.
Debt settlement is not an easy process... but no pain, no gain.
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What is Debt Negotiation and Settlement? Can you give me some debt settlement advice?

If you are drowning in debt, facing collection, or even facing bankruptcy, you need to address the situation now, before it gets any worse. Our debt settlement advice: debt negotiation and debt settlement are often better solutions to severe debt than bankruptcy.

What is Debt Negotiation and Settlement?

Debt negotiation, also called debt settlement, is the process of negotiating with your creditors to either establish a new payment schedule at a reduced interest rate, or a lump sum payment that’s significantly lower than the total balance. If your only other option is bankruptcy, your creditors may be willing to negotiate with you to ensure that they get something rather than nothing.

Debt Advice on How to Negotiate Your Debt

If you’re interested in debt negotiation, you can either hire a debt negotiation service to represent you to your creditors, or you can contact them on your own. If you want to try a do-it-yourself negotiation, follow this advice:

Be calm, clear, and convincing. Explain your situation in unemotional, professional terms. Remember, they’re not required to negotiate with you, so crying or screaming is not likely to move them to help you.
Don’t give up easily. If your creditor denies your request, explain to them why settling would be beneficial for them. Their priority is their bottom line and you must make it clear that the offer is in their best interest. If your request is still denied, do not agree to anything before you hang up the phone.
Send a debt negotiation letter. The letter should be professional and clearly state your arguments. Send it by certified mail and keep copies of all your correspondence.

If you’re not comfortable negotiating with your creditors or don’t achieve a settlement, you can hire a credit counseling or debt settlement service. For a fee, they will negotiate for either a low lump-sum payment or a small number of monthly payments toward a reduced balance at a significantly reduced interest rate.

Although it might seem odd to pay a fee to save money, experienced debt negotiators will save you far more than the cost of their fee. They know which creditors are willing to negotiate and how much of a settlement they will accept. Due to their network of relationships, they can settle debts you couldn’t on your own. Due to their experience, a professional negotiator will not be intimidated or scared by threats a creditor can make that would freak out the average person.

Things to Remember When You Negotiate

Whether you negotiate on your own or hire a debt negotiation service, keep the following things in mind:

The amount you can afford to pay. This should be a reasonable amount and often 40-60% of the total debt. Low-ball offers will be rejected immediately.
Creditors aren’t required to negotiate. They often will, if the next option is bankruptcy, but don’t expect them to make it easy for you.
Negotiation is a process. When you negotiate, you make an offer and your arguments. Expect them to make a counter-offer and counter-arguments.
You’re negotiating with a person. If you’re friendly and professional, they will be as well. Explain your situation in personal terms without becoming emotional. Listen to their arguments and answer them clearly. Your job is to convince them to see your side. Their job is to convince you to pay more. If you both play your roles properly, you’ll reach an agreeable settlement.

Negotiating debt is difficult and scary for most people, but it can be done. If you don’t succeed on your own, hire a professional to do it for you. You can get help for your debt.

Learn about additional ways to get out of debt, and use our new, free Debt Coach tool that will help you find the best way to get out of debt.

Get rid of your debt faster with debt relief

Take the first step towards a debt-free life with personalized debt reduction strategies.

Choose your debt amount

$25,000

$1,000$100,000

See if you qualify

Or speak to a debt consultant 844-731-0836

Struggling with debt?

Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q1 2024 was $17.69 trillion. Housing debt totaled $12.82 trillion and non-housing debt was $4.88 trillion.

According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

The amount of debt and debt in collections vary by state. For example, in Nebraska, 18% have any kind of debt in collections and the median debt in collections is $1972. Medical debt is common and 6% have that in collections. The median medical debt in collections is $653.

Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.

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10 Comments

AAnonymous, Oct, 2019

Hello: I hired a debt negotiating company that charges 25% of original debt amount for each settlement. I received a mail from one of the debt collectors saying that if I can pay off the load by paying 50% of the money I owed. Now should I directly negotiate with this debt collector so that i can avoid the 25% fee for the negotiator or is it still better to go with debt negotiator?

AAnonymous, Oct, 2017

Thanks for the help!

EEmma Watson, Jun, 2014

Hello:I just spoke with GE Capital Retail for the Gap Visa card about decreasing my interest rates temporarily due to my recent graduation and being unemployed. I requested that they decrease my interest rates temporarily, for 3-6 months, since I am really drowning under them. They told me that they cannot and will not lower my interest rates and they will not put me in a hardship program either. They said that in order to be in a hardship program, they would have to close the account and I would have to be employed. I was not necessarily asking for a hardship program but asking for temporarily decreased interest rates as to help prevent me from filing bankruptcy. The customer service agent, who was sweet and sounded like a grandmother, said that I should ask my family for help or some people to help me out. I said that my record was flawless for 2 years prior to being with them and only in the last 9 months have things gotten out of hand. As you can imagine, I do not want these late fees and not being able to pay my minimum monthly payments. But they simply suggested to ask other people for help. Seriously, this was the WORST advice ever. As soon as I pay off the card, I am going to close the account. This has been such a poor experience and their advice felt as if they were mocking me.

NNik, Mar, 2014

My loan was under a review for modification on agreed payments under a loan modification in early 2008. In the meantime, it was charged off October 2008 (never informed me) for about a month, then placed on a final modification in December 2008. I was making the payments on time and as agreed, then my loan was transferred to a different servicer in August 2009. I was making my payments on time. Then about February 2010, I did not receive my mortgage interest statement from the new servicer for my taxes. They informed me that my loan was charged off. I asked when, they stated when they received it. So, my question is, can a loan be charged off (without my knowledge), then approved for a loan modification, then transferred and the new servicer place it as charge off?

BBill, Mar, 2014

Your experience is not unique. The servicing of problematic home loans continues to be problem the mortgage servicers can't seem to figure out.

Consult with a lawyer in your state who has experience in fighting foreclosures and negotiating settlements for home loans. This is a new, emerging specialty in law, and you may have to search a while before you find a lawyer who knows how to handle situations like yours.

LLisa, Mar, 2014

I cosigned a dental loan for my mother. She died and my step father said the loan was paid off. I checked my credit report today to find that this wasn't paid off and has now been charged off. Neither of us have seen a bill or had a call about this. He's going to contact the dental office and find out what's going on and will make payments on the debt if it is still owed. What do I do to clear up my credit report? I have always had pristine credit and now my score is down to 695.

BBill, Mar, 2014

The damage was done the moment the collection agent or dental office reported the debt as delinquent. Credit scores are the product of positive and negative information. You've already seen what negative information can do. Going forward, concentrate your efforts on taking action to improve your score.

EERIN, Jan, 2014

Hi there-Looking for some helpful info. I have a GE Capital Retail account that is in collections. I called and spoke to a rep at the agency, and was offered over the phone a settlement offer of approximately 45% of balance due. I had done my research before calling, and told them I was willing to work with them, but wanted a letter in writing from them detailing the terms of the settlement offer, and releasing me from further liability. They refused, saying that GE Cap Retail doesn't do settlement letters.HUH? I have been in business for myself, dealt with attorneys and such and ANYTIME there was a settlement offer, there was paperwork detailing it. What do do? Everything I have read tells me that if they aren't willing to send a settlement letter, they are being tricky. They are also telling me that I am almost to the 180 day mark, at which point I would be at "charge off" status...What are your thoughts?

BBill, Jan, 2014

You are absolutely correct. GE should have no problem providing a settlement letter IF the offer is a legitimate settlement offer. I checked with a negotiator at the largest debt settlement firm and he told me that they definitely have received settlement letters from them, but seldom for a settlement percentage that low (usually between 50% and 60%). I think that this adds to the concern of them not providing written documentation.

My advice is to let the collector know that as soon as they provide the letter that they can then get payment. If the collector refuses, then make this same request of that collectors supervisor. Hopefully that will get some movement, even if for a lesser settlement offer.

As for the 180 day mark, that plays into your favor, as GE will want this resolved prior to charge-off. That said, they will outsource collections after charge-off and, if that happens, you can expect a settlement for roughly 50%.