If you have debts, you might be frantically looking for a way out of it. One way is to settle the debts with your creditors. While the idea sounds simple, it’s more complicated than you might think. There are some grave mistakes you can make that can put you in harm’s way rather than getting you out of debt.
Keep reading to learn the top five mistakes to avoid when settling debts.
Trying to Settle too Soon
You might know that you are in over your head in debt, but if you pay your credit card bills on time, your creditors won’t think you are in over your head. This will make it difficult for them to want to settle the debt. They will just expect you to continue making payments as you have been making them.
The exact amount of time you must wait before you ask for debt settlement may vary by creditor. On average, though, you should be at least three months late on your payments before you ask for a settlement. Typically, the further behind you are on your debts, the more willing the credit card company will be to negotiate.
Trying to Haggle With the Credit Card Company
When you want to settle your debt, it should be because you can’t afford to pay your bills. It shouldn’t be because you don’t want to pay them. In other words, don’t go to the creditor and offer a specific amount of money to get you out of debt. You need to go to them because you are in financial trouble.
When you go to the creditor, you want to show them that you are having a financial hardship. You should do this in writing. You should also provide the proof that is necessary to show your situation. This includes bank statements, paystubs, or any other evidence you can provide, such as hospital bills from a recent hospital stay or your ‘walking papers’ from losing your job.
Trying to Negotiate Verbally
Any communication you have with your creditors regarding settling your debts should be in writing. You can get a verbal agreement all that you want, but there’s nothing holding the creditor to the agreement. Instead, get everything in writing.
Even if you start your negotiations verbally, ask for written confirmation once you agree on an amount. In reality, you should make a written offer to your creditors in the first place. This way they can see your full offer and counter it, should they feel it’s necessary to do so.
No matter how you start the negotiations, make sure that you have everything in writing. This way if the creditor doesn’t mark the account ‘settled as agreed,’ you have proof to take to the credit bureaus to get your accounts fixed.
Not Having Cash Available for the Settlement
It’s not unusual for it to take several months to get your settlement approved. Creditors typically don’t jump at the first offer or answer right away. They often want to wait and see if you are able to get back on track with your debts.
Once the creditor does accept your offer, though, you better be prepared to pay for it. Let’s say, for example, that you were able to talk to the creditor into accepting 60% of the amount that you owe on your credit card debt. Once they accept the offer, they will expect payment in full. If you don’t have the money to pay in full, you could lose the agreement to settle.
Not Researching Your Debt Settlement Companies
If you don’t want to do the negotiating with your creditors yourself, you may consider hiring a debt settlement company. While there are many reputable debt settlement companies out there today, there are just as many scams.
Take your time and do your research on any company you are considering. This way you can see how the companies work, what others have to say about them, and what they charge. No two debt settlement companies are created equal. Since they are dealing with something very important to you – your finances, it’s important to find the company that you can trust and afford.
Settling your debt with your creditors can be a great way to get back on your feet. Before you start asking for negotiations, make sure you have all of your ducks in a row. You need to know what to expect, what it will cost, and whether you are dealing with a reputable company.