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If you cannot pay the minimum balance on your debts, it's time for you to settle your debts. Debt settlement is where you negotiate with creditors/collection agencies and try to reduce your debt.

Here is a step-by-step guide to settling your debts by yourself:

1 Calculate your total debt amount.
2 Analyze your debts.
3 Get a copy of your credit report from the credit bureaus and analyze it. Check out these Sample Credit Reports from the 3 bureaus.
4 Look through your credit report and find out if your account is still with the creditor or it has been turned over to a collection agency.

How much
debt consolidation
can save you

How to settle your debts yourself if the debt is held by the creditor

  •  At the Creditors Database and find your creditor's contact information, then look these mailing instructions to make sure your letter is mailed correctly.
  •  Keep all acceptance letters, send in the amounts agreed upon, and request a receipt stating that the debt has been "Paid in full".
  •  Before agreeing on a monthly installment amount, find how much you should offer to your creditor.
  •  Contact your creditors, explain your situation, and then make a reasonable offer to them.
  •  Inform them that you are sending this offer to all your creditors and the ones who accept the offer first will be paid first.
  •  Repeat this process each month and adjust your debt settlement offers upwards until you are debt-free.
  •  Make sure that once you have paid the debt in full, you get the "Paid in full" letter you requested.
  •  Don't forget to obtain a fresh credit report once a year and keep yourself updated on your account status!

How to settle your debts yourself if the debt is held by a collection agency

 Contact the collection agency (CA) by letters.
 Record the name and direct phone number of each collection agency representative you talk to.
 Send a debt validation letter to verify that you owe the money. Accept a reply only when it contains the following:
  • Proof that the CA has been assigned to collect the debt by a creditor.
  • Detailed payment history starting with the original creditor.
  • Copy of the original signed debt agreement or credit card application.
  • If the reply is not satisfactory, inform the CA that they are violating the Fair Debt Collections Practices Act and they need to remove the collection listing from your credit report or you will sue them.
 If the CA validates the debt, you need to contact the creditor. Ask them to pull your account back from the collection agency. If your creditor doesn't pull back the account from the CA, negotiate with the collection agency.
 Offer a lump sum payment to the creditor.
 If you don't have enough money, make your creditor(s) aware of your inability to pay the total debt in a lump sum, and offer them an alternative payment plan.
 Avoid sending cash and get a receipt. Don't forget to mark your envelope as "Payment enclosed".
 Don't miss any payments and make sure that your check doesn't bounce when paying the CA.
 Try to clear the debt quickly so that you don't have to deal with the CA again.
If you aren't comfortable dealing with creditors/CAs, you can get help from a debt settlement company/law firm who will negotiate on your behalf and help you to settle your debts. You need to go for a no-obligation free debt counseling session with the company you choose so that they can assess your financial situation and then decide how much you can offer your creditors.