What should you include in your debt settlement letter?
Are you tired of getting those incessant collection calls?
But have you ever wondered why suddenly you are getting collection calls?
Well, in that case, you might haven’t paid off your outstanding balance amount within 180 days from your last due payment date. Due to that you start getting collection calls either from your creditors or collection agencies. And now these collection calls are posing as bugbears in your life!
But, you don’t need to worry about this! We are there to help you out. And opting for debt settlement could be an effective way out for you.
Usually, your creditors sell off your debts to collection agencies after continued non-repayment of 180 days after your default date, that is, the last due date of your payment.
“A lot of people are ashamed of having their debt, and that’s what debt collectors prey on,” says Ramon Khan, a former debt collector from Texas.
So, to opt for debt settlement, firstly, you need to negotiate with your creditors or collection agencies to reduce your outstanding payable amount!
They might not agree at first when you try to negotiate with them. But you have to remain calm and propose a fruitful offer to settle debt with a reduced lump sum payment! You might have to convince them that bankruptcy can be an option you can think if they don’t agree for settlement.
But before you start settling your debt with a collection agency or your creditors on your own, just go through the checklist carefully!
Validate your debt
You have got a federal right to validate your debts under the Fair Debt Collection Practices Act (FDCPA).
So, the baby step would be sending a written request to the collector or your creditor within 30 days from getting informed. But you need to know what a debt validation letter consists of.
Generally, a debt validation letter consists of the following information:
- Amount of your debt
- The name of your original creditor
Know your statute of limitations
It is the amount of time within which your creditors or collection agencies can sue you in court for non-payment of your debts. Each state has its own laws on the statute of limitations (SOL) which usually ranges from 3 to 6 years! The SOL also varies from one debt to another and from one state to another!
According to the Fair Debt Collection Practices Act, your creditor or collector can’t contact you after the statute of limitations on the debt has passed!
But always remember that your credit report will always show your unpaid debt account for usually 7 years even if you have passed the statute of limitations!
What amount should you offer for settling your debt?
The key question while negotiating is what amount a debtor should offer the creditor! Each credit company has its own debt settlement policies. The settlement amount differs from one company to another.
Before starting the negotiation process, explain your financial hardship to your creditors. This will provide a better picture of why you are trying to settle your debts. Then start a negotiation by offering 30% of your outstanding balance amount. And please don’t agree to pay off any amount that you won’t be able to afford!
Remember, debt settlement can take time as both you and your creditor have to agree on a specific amount! Why will a creditor allow you to pay a lower amount than what you owe?
That’s why you need to negotiate with patience and diplomacy while trying to settle on a particular amount. I hope that you will be flexible and work out a settlement plan with the creditor.
So, in that case, you can opt for professional help to settle your debts and get rid of them!
One time offerings:
It is for sure that you will always get a better deal when you are offering a bulk cash amount to the creditor. Again, there are chances that you might not get any deal from the creditor if your offer includes a payment plan. If you have the cash, it is possible to have a 30%-50% reduction on your debt amount. With proper negotiation sometimes it can go even lower. However, this reduction is not guaranteed.
Plans to pay:
If you don't have enough cash to offer the creditors, you can opt for a payment plan. While negotiating about the payment plan, it is recommended that you be honest and straightforward about your financial standing. Usually, there are two types of payment plans:
Short-duration payment plan:
If you are capable of clearing your debt balance within a span of 3 to 6 months, there is a possibility that the creditors will reduce your debts to an affordable amount. It might happen that your late fees and taxes will also be waived off by the creditor.
Long term payment plan:
Debt relief companies have come up with a customer-oriented plan known as 'Long term payment program'. This program helps to save a lot of time for the creditors.
This program will help debtors who need time to pay off their debts. In this program, the debtors usually get 1 to 5 years to clear their debt amounts. Recently some credit companies have scheduled a maximum time limit of 1 year to be on their long term payment programs.
Long term payment plans can trigger your interest rates as high as 20%. The longer you take to repay your debts, the more amount of money you have to shell out to the creditor.
At the same time, you may not focus on your financial goals as you have to make regular monthly payments to pay off your debts. No doubt, debt settlement reduces your outstanding balance amount to some extent. But still, an obligation remains to make monthly payments, as per the plan, by sacrificing a handsome part of your paycheck.
It is thus ideal to squeeze out money to the maximum from your monthly expenses and repay the creditor to lead a peaceful life away from debts.
In this context, let’s have a look at a few scenarios about the negotiation process!
Initially, your creditors or collectors will call you for repaying your debts. So, you can start negotiating with them over the phone only! But in most of the cases, they won’t agree with you during the initial phone calls.
You have to reiterate your financial condition and pledge for a settlement whenever they call you. So after a few phone calls, your creditors or collectors might agree with you. But make sure to send a letter of acceptance of a verbal offer, after they confirm the negotiation process over the phone.
You can start negotiating with your creditors or collection agencies through letters to reduce your outstanding payable amount. As obvious, they will counter-offer you with a higher percentage of the said amount.
In that case, you need to send a counter debt settlement offer to your creditors or collectors.
What should you include in these letters?
A proper header:
You should include all the necessary information like your creditor’s name, address, the department along with the relevant date in the header of your letter. After that, mention your account number and the balance amount you owe!
Explanation of your financial constraints:
It’s quite normal to go through a financial crisis when you’re not able to repay debt. Try to make them understand that amidst this unforeseen situation you are willing to pay off your debts by settling the amount.
Don't miss out on an opportunity to explain your tough time and how eager you are to settle your debt and avoid bankruptcy!
Debt related information:
Well, this is one of the important constituents of your letter! Include everything regarding the account which you want to settle. For example, the debt amount, your default date, the date on which you have received the last intimation from your creditors or collection agencies, etc.
Usually, the creditors and collection agencies prefer a lump sum payment for settling a debt. Still, you can propose a settlement in the form of monthly installments.
In case your creditors or collectors agree, mention the amount which you can afford per month. Also mention how long it will take to pay off your reduced payoff amount.
Request for updating your credit report:
Your creditors mark those debts as “charge-off” in your credit report. This happens when you have become delinquent in paying off your debts for more than 180 days.
So, you should request your creditors to remove these late payments and charge-off from your credit report. At least the accounts should be updated as “paid as settled”.
Opting for a certified mail:
Go to a local post office and obtain a Certified Mail Form 3800. It usually contains a green and white sticker including a barcode.
This will allow you to track your mail through the USPS (United States Postal Service)! And the form also contains a perforated receipt, which you can keep as proof of sending the letter. And someone has to sign while receiving your letter on behalf of your creditors or collectors.
So, in both cases, you try to cap your settlement amount by 50% of the total outstanding balance amount.
Once your deal gets finalized, don’t forget to collect a debt settlement agreement from your creditors or collectors! It’s highly advisable not to start paying before you and your creditors both sign this agreement.