Ways to settle your debt and reduce your burden
If you're in financial hardship and it's getting difficult for you to pay your bills, try to settle your dues and get out of the crisis. A settlement is an agreement between you and your creditor/CA wherein the latter reduces your outstanding dues, making it easier for you to repay your bills.
How to settle and clear your debt
When you're in problem making your bill payments, you may talk to your creditors and explain your financial condition in detail. Use letters to communicate with the creditor and mention why you can't pay, along with what alternative plan you've thought of in order to repay your bills. If you've suffered a job loss or you're going through a family crisis or medical treatment, you may not be able to make payments in full. In such a situation, you may need to settle your dues for less than the outstanding balance on your accounts.
You can settle your dues in 2 ways, as discussed below.
1. Professional settlement services: There are debt relief companies which can help you negotiate a fair deal with your creditor or collection agency. These companies negotiate with creditors and CA and have your unpaid balance reduced by 40-60%. All you have to do is get enrolled in settlement program offered by these companies and pay a certain fee for the services they provide you with.
Settlement companies usually begin with free debt counseling wherein they'll assess your debt load and financial strength. Then they'll ask you to stop paying your creditors and divert the monthly payments into a savings account (trust account) created by the company. Since you stop paying your creditors, they can make harassing calls in order to make you pay the bill. You can divert such calls to the settlement company who'll communicate on your behalf.
When you've accumulated enough savings in the trust account, the settlement company starts negotiating with your creditors who agree to accept an amount lower than the total dues. When you settle one account, the settlement company moves on to negotiate with other creditors till you get rid of overdue accounts. For further details, read through the information on how debt settlement works.
2. Do it yourself plan: This is where you take the initiative to negotiate with creditors/CA and have your outstanding balance reduced. It is better to get a debt settlement agreement signed by your creditors or CA. This is to confirm that they've accepted the offer you've negotiated with them. Regarding how to negotiate and settle your dues with the creditor or CA, check out the article "How to settle your debts yourself".
How settlement affects credit score
While you stop making monthly payments and start saving in order to gather funds for settlement, creditors/CA will report the missed payments to the credit bureaus. As such, it will lead to negative remarks on your credit report thereby bringing down your credit score.
After you've settled your debt for less than what you owe, creditors may report your payment history to the credit bureaus. They may update your account status as "Paid as settled". If the creditor has charged off your account, which implies that your account is now in collection, then the CA may report your account status as "Paid charge-off" or "Settled charge-off" once you pay off the bill.
Whether your account status is reported as "Paid as settled", "Paid charge-off" or "Settled charge-off", each of these remarks has a negative impact on your credit. To protect your credit from getting hit, negotiate a Pay for delete agreement with the creditor or CA. With such an agreement, you can have the account deleted from your credit report once you settle and pay it off. However, if you don't get a Pay for delete agreement approved, then you'll have to try out means to repair your credit after a settlement.
How to repair credit after settlement
Here's a list of 5 things you can do in order to repair credit after you settle your dues.
- Secured credit card: Such a credit card is easily available to those with poor credit history. The purpose of such cards is to help one rebuild credit. Know how secured cards work.
- Gas/Store cards: These are easy to qualify for. Once you get gas/store cards, keep using them every month and paying more than the minimum payment. Do not use more than 50% of the credit line at any time. Once you're able to show a positive credit history through your gas/store cards, you can apply for a higher credit line.
- Savings account: Open a savings account and deposit funds into it every month. Take out a small loan with the savings account as your collateral. You can even use this account in order to get a secured credit card. Once you have enough savings, you can pay for unexpected expenses without having to use a credit card.
- On-time payments: Pay your utility bills and rent/mortgage payments on time.
- Avoid unnecessary credit: Do not take in unnecessary credit and raise your debt to income ratio. Make sure you avoid taking out payday loans right after settlement, because in case you fail to pay it off, it'll hurt your credit even more and you'll end up in debt again.
A settlement agreement helps you to get rid of excess dues and pay as much as you can. But your credit gets tarnished while you're on your way to settle your dues. However, you can restore your credit if you're able to manage other bills in a disciplined way. In addition, you need to live within your means and avoid going after loans/credit which may get out of control and lead you into further trouble.
Related Forum Discussions
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#1
05-22-2006, 10:13 PM
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Sub:
Ways to settle your debt and reduce your burden
Folks, we've all heard about all these debt consolidation companies and how they can work with your creditors and combine all your debt into one low monthly payment. But what if your creditors have gone "a-hole" on you and sent your account to a collection company? And not just any collection company; they're a company that is described in great detail around this site with horror stories and everything. Collection companies will not work with Consolidation companies, and visa versa, so you're pretty much screwed there. They will only work with the credit card companies and banks.
I was in a similar situation as described throughout this site. I had three credit card accounts end up at three different collection companies (all three cards were with Citi; Amoco/BP, Sears and a credit card directly from Citi) and the collections agents at all three companies were relentless. They wouldn't settle for anything less than $500 per month for each account and basically treated me like I was the scum of the earth! They especially hated the fact that I couldn't come up with $3,500 that very second! So I got fed up with them, said screw em and immediately started looking for a consolidation company to try to take care of this. One consolidation company referred me to a debt settlement company. It is a law office in Tempe, Arizona, named Roll Law Office. Keep in mind I do not work for this company, I'm just a very happy customer. Their customer service is outstanding. All I had to do was give some personal information then give them the name and phone numbers of all of my collection companies and which accounts they were in and they immediately went to work. If one of those collection companies called me, I read back to them a small script given to me by RLO. It basically said that I have secured the Roll Law Office to handle this account. Their number is 1-888... If the collection company asked me what it was for, usually they asked if it was for bankruptcy, my answer for that was "it is something along those lines" and I never heard a word from those collectors again. This was nearly six months ago. I am paying $175/month for those three accounts (total debt for all three was about $9,000 so it wasn't all that bad, but still bad enough) and RLO acts just like a consolidation company. They say I will be completely debt free from those accounts within 3 years! I encourage everyone who is having issues with collection agencies, especially multiple ones, and get in contact with a Debt Settlement company. Roll Law Office is just one of them. 
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#2
05-23-2006, 06:54 AM
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Junior Member
Join Date: May 2006
Location: Oklahoma
Posts: 87
Credits: 4,488
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Sub:
Thanks for you post...I am currently enrolled with a settlement program also. They too gave me a script to read, but the first time a CA calls and pretends to be someone of HIGH importance, I froze and could not remember my speech (plus I was at work and people surrounded me and was listening to me--I was embarrassed)
It is nice to meet you...keep updated on your settlement process. You did mention that on 9000.00 dollars of debt that they told you 3 years to complete program. They told me 38 months for 25,000.00 dollars worth of credit card debt.???? The interest is accumulating like wild fire.
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#3
05-23-2006, 06:59 AM
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Sub:
Is T&C considered a debt settlement program? If not, would someone please explain the differences between debt settlement and debt consolidation?
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#4
05-23-2006, 07:07 AM
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Junior Member
Join Date: May 2006
Location: Oklahoma
Posts: 87
Credits: 4,488
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Sub:
debt settlement DOES not pay monthly to your creditors. They say that if your paying them monthly, they have no reason to settle anything right? Instead you pay the debt settlement company monthly to deal with your creditors to create a settlement and this is over an estimated time period.
debt consolidation is a company that you pay monthly to pay your creditors for you monthly at a lower interest rate than what you have right now. (In my opinion, they did not get my interest rates low enough and was not going to save me any money at all) so I backed out of their program and went to settlement program. Hope this helps.
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#5
05-23-2006, 07:26 AM
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Sub:
Since I have not paid my intial retainer fee to the debt consolidation company, will you be willing to pm me the debt settlement company that deals with payday lenders?
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#6
05-23-2006, 08:07 AM
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Junior Member
Join Date: May 2006
Location: Oklahoma
Posts: 87
Credits: 4,488
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Sub:
did you get my pm?
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#7
05-23-2006, 08:09 AM
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Sub:
No I havent.
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#8
05-23-2006, 08:30 AM
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Senior Member
Join Date: Dec 2005
Posts: 1,183
Credits: 18,818
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Sub:
Can you PM me that settlement company information also? I have a friend that would like it. Thanks!
__________________
Ability is what you're capable of doing. Motivation determines what you do. Attitude determines how well you do it. - Lou Holtz
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#10
05-23-2006, 10:55 AM
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Junior Member
Join Date: May 2006
Location: Oklahoma
Posts: 87
Credits: 4,488
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Sub:
One thing about my company is:
I got to keep one credit card open with a balance of less than 500.00. So, while I am in this program for 3 years (I am also paying monthly on time to my one credit cart, house, truck, direct tv, cell phone and the debt settlement company...) so, I do still have good standing credit on my credit report. 
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#12
05-23-2006, 04:39 PM
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Senior Member
Join Date: Dec 2005
Posts: 3,666
Credits: 36,588
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Sub:
LinderLou,
Which company are you working with? I'm working with debt settlement now as well. I'm pretty happy thus far. Lori, you will need to register with the site so someone can pm you the information.
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#14
05-29-2006, 02:52 PM
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Sub:
Whether you chose a debt consolidation program or a debt settlement0 program, the ultimate goal should be to become debt free and take care of your credit. debt settlement programs appear in the credit file for seven years but its negative impact is overlooked by the creditors if you have a very good payment history. Keep your credit in mind while you are on the way to fix your credit.
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#15
07-01-2006, 08:28 AM
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Sub:
I know it's been just over a month since I posted that but I contacted my Settlement company, Roll Law Office (a part of usconsumeradvocate.com) and the guy I'm working with said that as long as I keep sending them my monthly payments, I'll be completely debt free from those accounts in about 2 1/2 years!
What they do is they focus on one account, my $175 goes toward that one for a while until enough money accumulates in the principle. Once the settled amount is in the principle, they send that about to the CA for the settlement and that one is done. They do that with my others until it is completely done and over with. I still kept on getting letters and calls from this one CA called ASG out of New York, but I just keep on forwarding those letters to RLO and a couple days ago they tried to call me and I just reminded RLO of that as well. RLO says they'll remind them again that all communication must go to them. Hopefully they'll keep calling me and break some Federal laws and I might get a refund of whatever money they're trying to collect! Then again, maybe not. Either way, this program is going to save me TONS of money in the longrun and I don't have to worry about getting any more collection calls from those accounts again!
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