Hiring professionals to settle your debt on your behalf is costly. Not only do they charge various fees for their services, but they are first and foremost a business. Debt settlement companies would not still be in operation if they did not profit from their clients. Many individuals have taken the liberty of negotiating their debt with their creditors directly. This guide will provide you with step-by-step instructions on how to do this yourself. Although your creditors will probably turn you down several times and be difficult to persuade, many of them do want to work with you to pay off your debt. This is because they know they are getting the short end of the stick with you as you are with them, when a debt settlement company gets involved.

Step 1: Know your debt

Only debt that is past due can be negotiated. Your first step should therefore be to check to make sure the debt you owe is not current. If your payments are up-to-date, you will have to be at least 3 months late to begin settlement negotiations.

Next, you will need to decide which debts to settle. There are two types of debt—secured and unsecured. Debt settlement typically involves unsecured debt, which is any loan or debt that has no tangible assets or property attached to it. The most common types of unsecured debt include credit cards, medical bills, utility bills, and personal loans. It is best to settle debt with high interest rates first, because they have the most dramatic effect on your monthly budget.

Step 2: Preparation

Before you call your creditor to make settlement arrangements, it is important to gather all necessary documentation. This includes:

• Recent bills and the amounts owed
• Your credit report
• Records of all penalties and interest

In addition to gathering paperwork, you will also want to do some research on your creditor. The key to do-it-yourself debt settlement is knowing who you are dealing with, whether it is a credit card company or collection agency. Every creditor/collection agency has its own policies and settlement limits. Credit card companies usually have more patience dealing with you up front than collection agencies. They should be willing to negotiate with you even if you are really behind on payments, perhaps 4-5 months late.

Step 3: Making the call

If your account is seriously past due, don’t expect the collection department to be cordial. Call the creditor and ask to speak with someone who is in charge and has the authority to make settlement arrangements. Make it clear at the beginning of the call that you are willing to make a payment or are interested in a settlement. Then, unemotionally explain your situation to the creditor and why you have been unable to make your payments. Next, you will want to tell them your plan to settle the debt and make them an offer. It is a good idea to mention that you are seriously considering bankruptcy if you cannot get rid of this debt.

Step 4: Settlement

In general, you should aim for a settlement that is 30-50% of the balance that you owe. If your delinquent account has been passed on to a collection agency, your room to negotiate will be smaller. There are several different ways companies can report your account status to credit bureaus after your debt has been settled. It is important to get a good account status because there may be lingering negative repercussions. Below is a list of them in order of preference to you:

• Paid as agreed
• Paid (with no negatives such as charge off, repossession, late notations)
• Settled (better than Paid—Charge off or Paid—Repossession)
• Paid—Charge Off, Paid—Collection, Paid— __ days late

• Get your terms in writing
• Keep good records of whom you speak to and what is agreed
• Keep copies of all documents
• Follow-up all phone correspondence
• Don’t argue with creditors/collectors or use profane language
• Be patient (settlement may take weeks/months)
• Don’t look too eager to settle
• Don’t be greedy
• Know your rights as a consumer (outlined in the Fair Debt Collection Practices Act) 

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