Debt settlement can be a tricky process. Making a mistake in the settlement process could hurt your chances at getting the creditor to agree to a reduced payment. It could ruin your settlement plans completely. These are some of the worst debt settlement mistakes you should avoid.
Taking out a cash advance before settling a debt. If you open a new credit card, take out a cash advance, or transfer a balance within a few months before trying to get a settlement, the creditor will probably turn you down. Often, these types of transactions look like you’re trying to commit fraud or knowingly take advantage of the system. To get a settlement, your creditor must believe that you’re struggling. Making transactions like these don’t usually help your case.
Trying to settle just one credit card debt. Your creditors can know which accounts you’re past due on and which have current payments because they can look at your credit report. If you’re past due on just one account while continuing payments for others, that one creditor will wonder how you can afford your other payments and not their payment.
Making catch-up payments. During the collection process that begins after you miss a credit card payment, creditors will generally try to convince you to get back on track by making catch-up payments. Once you make this type of agreement, settlement is usually off the table for at least several months. Don’t make any type of payment arrangement that you are not sure you can keep up with.
Offering a settlement without having the money. Don’t bluff the creditor by offering a settlement when you don’t have the money to pay it. Settlement offers are usually on the table for a limited time. Once a creditor agrees and you fail to pay, it will probably be even harder to get the creditor to agree the next time, because you reneged on your previous agreement. It is usually best to wait until you have the settlement funds on hand before you offer a settlement.
Making a settlement payment without a written agreement from the creditor. Don’t rely on an oral agreement. Get a settlement offer in writing from the creditor on company letterhead. The agreement should include the amount of the settlement, the account number, the date of the offer, and a statement that the settlement satisfies the account in full. If all those elements are not on the letter, you should not make the settlement payment. You need this offer letter just in case something goes wrong, e.g. your account isn’t updated on your credit report or a collector later tries to collect the cancelled balance.
People try to get over on creditors and collectors all the time with all types of excuses. Avoid doing anything that makes it look like you’re one of those people who’s just trying to get out of paying their obligations. Instead, you should show your creditor that you’re genuinely having trouble making your payments and you need relief through debt settlement.
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