When your finances seem to be taking over your life and you can't make your payments each month, you should try to work out debt settlements with each of your creditors before you file for bankruptcy. A debt settlement is when a creditor agrees to take a lump sum payment that is less than the full amount owed. This is done so that the account can be closed and reported as paid to the credit bureaus.
Many people don't even think about debt settlement as an option, but you'd be surprised how easy it is to settle with a creditor if you have a history of making payments late or if you consistently don't pay at all. Creditors would rather get some of the money they are owed than nothing at all, which is what happens if you file for bankruptcy.
There are companies that can help you settle your debts, but in many cases, you can work out a deal with your creditors on your own. Try the steps below to get a debt settlement and pay off your debts as quickly and with as little money as possible.
First, work out how much you can pay to pay off all of your debt. Find out what your most important monthly costs are, such as your rent or mortgage, food, medical bills, etc. Subtract your total expenses from your net pay. The amount you have left over is how much you can pay toward a debt settlement plan.
Next, make a list of all the people you owe money to but haven't paid yet, along with how much you owe each one. Find out how much of your debt settlement budget you can put toward the account and write it down.
Write to each of your creditors or the agencies that are taking care of your account if it has already been sent to collections and tell them what's going on. Tell them that your financial situation has changed and that you are very close to filing for bankruptcy. This means that you can't make payments as agreed.
Tell each of your creditors how much you owe in total and how much money you have to pay it off. Tell the creditor how much you can pay on your account and let them know that you are sending the same offer to all of your creditors and that you will pay off the ones who accept your offer first. This might make them more likely to agree!
You should get a few acceptance letters, if all goes well. You may also get some no's from creditors who aren't willing to accept a debt settlement right now. Keep a copy of each letter for your records, and send a payment right away to any creditors who agreed to the debt settlement offer as long as you have it in writing.
You can do the same thing every month and send new letters to creditors who haven't agreed to your debt settlement offers yet. Since you've already started to pay off some of your debts, you'll have more money to put toward the rest, and more creditors will be willing to settle with you.
Just make sure you insist on getting agreements in writing. Some creditors have agreed to debt settlement offers over the phone, but then when they get the money, they say they never agreed to the offer in the first place.
