The biggest part of debt settlement is probably negotiation. You want to pay the smallest amount possible to satisfy your debt (or nothing at all!) and the creditor would prefer if you paid the full balance of the account. Somewhere in the middle there’s an amount that could work well for both of you. Sometimes you could be the one making the initial offer and your creditor will respond with an acceptance or a counteroffer. But, there may be times when you’re on the receiving end of the initial offer and you’re faced with a choice to accept or reject the offer.
Some creditors and debt collectors automatically send out settlement offers on accounts. Creditors may do this when the account reaches 90 days past due. Collection agencies may make the offer as soon as they assume responsibility for collecting on the debt. A letter including the offer may not specifically use the word settlement, but there could be some language to indicate that you can pay a lump-sum amount that’s less than the full balance due and the creditor will cancel the rest of the debt. Once you receive the offer, you have to decide if it’s worth taking.
Generally, you want to settle your accounts for less than 60% of the balance. The older the debt is, the less you should settle it for, especially if you think a junk debt buyer has purchased the account. These junk debt buyers usually buy accounts for just pennies for every dollar. So, a junk debt buyer may have purchased a $10,000 account for just $100 to $200. But, they’re likely banking on you not knowing this. If an account is several years old, it’s probably been purchased by a junk debt buyer like Asset Acceptance, NCO Group, RJM Acquisitions, or Collins Financial Services. There are many more junk debt buyers in the industry though.
To make your counteroffer, you should first decide how much you’re going to offer. This amount should be based on what you can afford to pay, what the creditor has already offered, and whether the account is still with the original creditor, a debt collector or a junk debt buyer. If you’re not sure, try using an internet search for the company’s name on the letter to figure out if it’s a collector or junk debt buyer.
You should keep your counteroffer letter simple. You should say that you’ve received their initial offer of $X and that you propose to pay $Y. You could say that you only have a certain amount of money that you’re able to use to settle the account. Ask the creditor to sign and return a copy of the agreement if they accept. You should send your letter via certified mail with return receipt requested and wait for an answer. If you have a fax machine, include the fax number so the creditor can send the agreement back faster if the creditor accepts.
If you and the creditor reach an acceptable settlement amount, then make the payment and keep a copy for your records. Making a counteroffer or just negotiating could be intimidating so you could always hire a debt settlement company to help you through the process.
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