Debt Settlement Priorities

Before the negotiation process begins you must get your house in order and develop a game plan as which creditors to attack first.  Also, the amount of settlement you want to obtain, and how to present your situation in a way your creditors will want to settle quickly and for the right amount.

First know exactly how much and to whom you owe money.  Get out your credit card statements and loan agreements and list the debts with amounts owed, interest rates, and current status.  Are you currently delinquent and if so, how delinquent, are you working with the original creditor or a collection company, and has any legal threats been made on the account.

With this information you want to attack your accounts as follows:

1-      Any account that has pending legal action .  Substantial settlements are still possible but you need to have a lump sum to negotiate a one time or very short payout plan.

2-      Accounts that are approaching the charge-off date with the original creditor, usually around the 180 day delinquency.  Your creditor will be most receptive to offers before they are forced to write off the account as a loss.

3-      If all things are equal regarding collection pressures pay off the smallest amounts first.  This way you may have enough set aside to settle more than one account.  Your credit looks better the more accounts you settled not necessarily the amount.

4-      After you have exhausted your initial set aside amount your accounts  will probably be with a collection agency.  Deal with the account that will give you the best offer when new set aside funds are accumulated.

Also, know that your creditors have invested millions to be able to track your credit and payments histories.  When speaking to them (if you must) do not divulge any information that might be false if they were to see your credit report.  For example, the creditor will know if you are paying your other creditors and not him.  He won’t  negotiate if he feels you are taking care of your other accounts at his expense.  He must think that you are on the verge of bankruptcy and his only hope to salvage any money from you is to negotiate a partial payment.  Your records will show how you are handling your debts.

What do they look for when determining if you are indeed close to bankruptcy?  First on how you are handling your payments with all your debt.  Are you dealing with a debilitating medical problem, are you out of work or show no probable future increases in pay, and finally do you have anything to lose in a bankruptcy such as a home or vehicle.

Remember they can check much of the information you provide them. They have access to your credit report, credit applications, Social Security Administration, public records, court records, etc.  If it’s in the public domain they have access to it.

What they don’t want to see when reviewing your credit history, and whether you are a good client to settle with.

1-      Recent activity on your card especially cash advances.  They don’t want to see you running up to credit limit and then declaring a hardship.

2-      You are current on all your accounts.  What incentive do they have if you show you can keep up with your minimum payments. They must be convinced that you might file bankruptcy and they will get nothing.

3-      You offer a low settlement amount and want an extended payment period.  Unless you can settle with a lump some or short payment of 2-3 months you probably can’t get better than a 60% offer.  Why?  They don’t trust that you can live up a longer-term agreement.  Plus, since they are accepting only a partial payment they will want their money ASAP and move on.

4-      They think they can sue you and recover money.  If they think you are pulling down a big salary and have assets (maybe hidden), they might think they can take you to court to recover their debt.  This is a gamble for them because it is so expensive and takes a lot of time, plus you could still file bankruptcy at the last minute and they would get nothing.

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