When you are in a pool of debt there are two feasible options that you can choose from in order to get rid of your debt. Both of these options will have its characteristic pros and cons which is why you should be careful with your choice of options.
- One way is to settle your debt for a lower amount than you actually owe after negotiating with your creditor or
- Pay the full amount one time taking out a debt consolidation loan and continue paying this single larger loan off.
Of course, the third option of filing for bankruptcy is taken out of the equation completely as it is more complicated and detrimental to your finance and credit health.
However, it is the nuances and intricacies of debt settlement that makes debt consolidation a more prudent and favorable option to debtors struggling with their monthly payment, of course, if the situation permits and are not dire. If you go through the different debt settlement ratings of different companies you will see it for yourself.
It is about creditors’ discretion
The success of debt settlement negotiation entirely depends on the discretion of the creditors.
- Right at the outset, they may deny participating in any such negotiations though they are legally obligated to listen to the financial hardships of their consumers.
- Apart from that, even if they agree to a settlement negotiation they may not entertain any involvement of a third party debt settlement firm or individual negotiators but prefer to talk directly to the consumer. That means you will need to have sufficient negotiating skills to make them agree to your offer which they hardly will, trying the make the most out of you.
- Making them believe that you really cannot repay the full amount is another pain point in the debt settlement process. You will need a lot of documents and shreds of evidence to substantiate that you really are facing a financial crunch. They will surely ask for your monthly credit card statements to review the financial situation and may even ask for your household budget as well.
If at any point they find any extravagance such as several trips to five-star restaurants, unnecessary shopping sprees in designer boutique malls, or any expenses that could be postponed once again according to their discretion, you stand a very low chance of being considered as truly in need for or worthy of their sympathy.
The requirements factor
In order to make sure that you are an eligible candidate for opting for debt settlement there are a few specific requirements that you need to meet with.
- Consider the sacrifice factor. In order to raise your chances of success in debt settlement, you will need to make the lump sum payment to your creditor as soon as possible. If you do not have this sum ready in your hand and at disposal, you will need to create a trusted account to build it up. This will need a lot of sacrifice and curbing of your spending on your card often to zero for a three to six-month period depending on the settlement amount you want to build.
- On a similar note, prior to requesting your creditors for a settlement, if you find that you have been making only your minimum payment every month or just a little more than the minimum every month on time, it will make you look like someone who is on the threshold of rambling away from your debt commitments.
With these bonuses in your mind, you can only make debt settlement offers to your creditors only when you fall behind on your debt and payments.
The complicated process
The process of debt settlement is complex enough which is another reason why people choose debt consolidation as a more feasible option to get rid of their debts.
- When the time comes to settle your debt and you are eligible to go ahead, the process starts with making a call to the primary phone number of the customer service department of your credit card company. Here you will need to ask for someone, preferably a manager in the debt settlements department to speak to regarding your plans.
- Once you find someone from the concerned department, you will need to make the initial explanation of your dire situation to that person over the phone. This will need some specific skill because convincing someone over the phone is not easy. The best way is to be brief but make sure you highlight the fact that you managed to save a little bit of cash that you want to use for settling one of your loan accounts before the money is used up somewhere else for some other purpose.
If you are able to convince the person about your situation and your need, you will be given a date to meet the person face to face, if at all. However, if you mention the fact that you have several such accounts on which you are contemplating debt settlements, chances are high that you will most probably get a more competitive offer from any one of the credit card company.
The rule of thumb
Follow the rule of thumb while negotiating with your creditor for debt settlement. Typically you should start by offering you’re the credit card company with a specific dollar amount that is about 30% of the total outstanding balance on your account.
In most of the cases, the company will counter your offer with a higher dollar amount or percentage. If you see that it is more than 50% of your amount outstanding consider trying a different creditor to settle with. The money saved will allow you to pay future monthly bills.
Last but not least, if and when things are finalized with your lender make sure that you get it all in writing which is another tough thing. In most cases, a verbal agreement on debt settlement turns the remaining balance to a collection agency.
All these make debt consolidation a better choice where you combine all your debts, pay it off and focus on a single monthly payment.