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How Do I Negotiate a Debt Settlement?

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A debt you owe an original creditor has gotten out of control to the point that the creditor has mentioned the option of selling the debt to a third part collector.

Although the Fair Debt Collection Practices Act (FDCPA) prohibits several types of abusive and threatening debt collector behaviors, mentioning the possibility of selling your debt to a third party collector is not considered a punishable offense under the FDCPA.

In fact, by mentioning the possibility of a debt sale to a third party collector, the original creditor is leaving the door open for you to take action and wipe the debt from your personal financial ledger.

Negotiating a Personal Debt Settlement

If an original creditor is willing to take pennies on the dollar to remove a debt from company books, you have to believe the original creditor would accept more money in a debt settlement plan. One of the most effective ways to take back control of a debt involves learning how to negotiate a settlement.

Bankruptcy is a Powerful Tool

Filing for bankruptcy might be the furthest thing from your mind, but you do not have to let a creditor know that. Every Chapter 7 bankruptcy filing and in most Chapter 13outcomes, the court discharges unsecured debts, such as unsecured personal loans and outstanding credit card balances.

This means the original creditor will most likely be holding an empty bag when it comes to receiving money to pay off your debt. Talking about possibly filing for bankruptcy is like melting ice; an original creditor immediately warms up to the idea of debt negotiation.

What is the Ideal Payment Percentage?

What will a creditor accept during a debt negotiation? Most unsecured creditors draw a line in the financial sand at 30%, with the goal to receive up to 50% of what you owe. With 30% considered the lowest accepted payment percentage, you should start a debt negotiation by offering to pay back 15%.

If the creditor demands a pay back of 30%, you might be able to get the creditor to go lower into the 20% range.

How Do I Negotiate a Debt Settlement?

Lump Sum in Cash

As we mentioned with bankruptcy, creditors would rather see a little return on a debt owed than nothing at all. You can strengthen your bargaining position by offering to pay a lump sum in cash.

Instead of waiting for payments every month, a creditor can benefit from receiving all the money agreed to in a debt settlement up front. A lump sum cash payment prevents inflation from reducing the value of debt settlement payments.

When to Contact an Attorney

Some original creditors possess thin skins and during debt negotiations can lose their cool. You might begin to receive threats to pay off the debt or lose everything in a lawsuit.

When any debt collector uses abusive language or threatens you with litigation, the time has come to contact a licensed consumer protection law attorney.

Complete the free evaluation form to learn more about the legal protections granted to consumers by the FDCPA.

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