Tag Archive for: debt settlement

What is Debt Settlement?

What Is Debt Settlement and Negotiation?

If you are being contacted by debt collectors for original creditors or debt buyers, there are things you can do to protect yourself. You may want to negotiate with them effectively so that you can pay them and minimize damage to your credit report or reduce the chance of their suing you, or you may just want to make them leave you alone.

Whatever you want, though, there are legal protections and tools you can use to move things forward and avoid hurting yourself in the future.

Know Who Is Trying to Get Your Money

It starts with knowing who is contacting you and what they want – and what they can or might do to you if they do not get it. Likewise, it is good to know what you can do to them, depending on how things develop. There’s an old saying that almost all lawsuits settle after negotiations, but that negotiations always occur “in the shadow of the law.” That is, what you will have to do after settlement has a lot to do with what they could make you do after trial. Thus there is a lot of information here designed for people suing and being sued – that’s how you know where the shadow of the law falls.

Credit card companies are different than other large companies or small businesses, and both are different than debt buyers. Talking to a bill collector inside an original creditor is different than talking to one outside the company, and it is yet another thing if you are contacted by someone on behalf of a debt buyer. It sometimes even makes a difference whether they call you first, or vice-versa. These are all important things to keep in mind. And there are many others. We have materials on the site that will help you understand how these things can affect your negotiations, and we have products that will make it easier for you to do what you need.

Debt Settlement – Not “One Size Fits All”

Many debt settlement companies attempt to force creditors to the negotiating tables by withholding payments. This is not always a good idea. There are also other alternatives, and we discuss some of those and ways you can act to minimize the damage to your credit report by negotiating with creditors, where possible, before that damage has occurred.

If you are negotiating, you will want to act in your strategic best interest, and our materials are designed to help you do that.

What Debt Negotiation is

This article talks about an important piece of the bad debt puzzle: debt negotiation and settlement.


Pretty much everybody knows what debt negotiation is, at least in theory. It goes like this. Obviously there’s somebody who says you owe a bunch of money, you negotiate, and you end up paying either less than or none of what you supposedly owe. That’s the view from a mile up.  Sweet, isn’t it?

It sounds like free money, but it really isn’t. If you think of it as an opportunity for something free, you will not be able to do it – you’ll be left wondering what went wrong as your financial security goes out the window. Instead, debt negotiation and settlement is a cross between a hard-nosed, back-room negotiation and a game of “chicken.”

So What Are You Negotiating? What Are You Settling?

You know, it’s interesting that people rarely ask what debt negotiation is all about – what are you “giving up?” What are they getting in return for the large amounts of debt you hope for them to give up? Suppose you owe a credit card company $20,000 and you have been making the minimum payments most of the time – but sometimes you can’t, so they have hit you with a bunch of fees, and you’re watching the debt pile up at an incredible rate. What do they get if they agree to take a single payment of $1,500?

It feels like you’re stuck – there may be no way you can make payments that would significantly reduce that debt. So what do you have to negotiate with? A whole lot of “nothing.”

You have risk and the difficulty of collection. In other words, you have the fact that unless you agree to pay and really try to do it, they will likely get nothing at all – or will get much less than they could.

That doesn’t sound like much, does it? And yet it is much more powerful than you might suppose. Anybody you owe a lot of money to is feeling the pinch. Even a large credit card bank, which doesn’t need your money for its survival by any means, is watching that debt mount and realizing that every time it gets higher, you get less likely to pay it. At the bottom of your options may be the possibility of bankruptcy, but they know that long before that you will simply stop paying and dare them to sue you.

You Often Get their Attention by Stopping Paying them

In essence, that it what makes debt negotiation work. You stop paying them and dare them to sue you – and then you offer to pay them again, only much less. Sounds crazy, doesn’t it? But it works if you take it seriously and don’t think of it as some sort of gold mine or a way to “get away” with something.  Instead, think of it as a significant part of a serious turn-around in your life. It has several costs – you should have no doubt about that, and it is something you do when there are no better choices available. There’s a chance that withholding payments will result in your being sued, and it almost certainly will result in at least a temporary trashing of your credit report. How you manage these risks and costs will determine, more than anything else, how well you do in negotiation.

There are ways to make it work much better than others, though. There are things you can do to manage your risks of being sued, and when the negotiations actually begin, a few techniques that can help. The main thing about debt negotiation and settlement, however, is that it, like other kinds of negotiation, is much less about negotiation than positioning. People only give you what you want because they believe it is the best outcome for them, too – the question is, how to do you give them that feeling when you’re asking to pay ten cents on the dollar of debt? And how do you make the risks to yourself “acceptable?”

How you answer those questions will determine how good a deal you get from your creditors.


Negotiate for yourself or use a service?

One question we have often gotten is whether you should negotiate for yourself or hire someone else to do it. We will address that question more extensively below, but in general, debt negotiation companies do not have any secret tools or special access to get you better results than you could get for yourself. They can’t get you better results than you could get yourself, although in rare situations you might find a gifted negotiator who is simply better at it than you are, of course.

But usually, as a matter of fact, you will probably be able to get a better result than a debt negotiator because it’s your debt and you care more about it than a negotiator would. Also, you will have power to take, or to threaten to take, actions that a hired negotiator would not have the power to take — i.e., you could threaten to file suit, defend their suit, or declare bankruptcy (just to mention three examples) that a hired negotiator would probably not be able to say. Most of debt negotiation involves not backing down and the effective use of time – along with not giving away too much and building up your actual rights. You’re in a better position to do that for yourself than a debt settlement negotiator could ever be.

The main advantage of a debt negotiator would be one of convenience or, more likely, as a cost of being afraid. Consider the deal the debt negotiator offers: they’ll want a percentage of what they save you. You can figure out how much that will be. Are you willing to pay someone else $5,000 to make twenty minutes of telephone calls for you that you could make because you’re uncomfortable making those calls? It’s a high price to pay.

What You Need to Know about Debt Settlement

Most debt reduction plans play a sort of “chicken” with your creditors. The way they work is that, when your situation becomes really dire, you stop paying as many bills as you can and start saving a pot of money that you will eventually use to pay all of them off. When you have saved enough, and when your creditors have become desperate enough, you negotiate to make them go away.

It sounds like a plan that might work – and it often does.

It works because of the crazy way the debt system works. There are unbelievably massive amounts of personal debt in the world, and a system set up to handle it. In this system, many people try to avoid paying their bills, but if the debt collectors keep after them long enough, they will pay. True commitment to debt avoidance is actually rare, and people being chased by debt collectors usually hide, but they don’t resist. That means the average low-level debt collector is trained and required to keep after you and has little, if any, authority, to negotiate with you. And these are the only people you will encounter until your resistance has passed a certain level. You must go higher up “the food chain” to reach people with real authority to negotiate with you, and this does not happen easily. In many cases it won’t be until the company has hired a lawyer.

So the idea behind debt relief is to withhold payment until the company moves you up the debt collection food chain to the bigger guys with more authority.

Of course the company will sometimes sue you instead of negotiating at that point, and this has been one of my objections to the whole debt relief scheme. You will undoubtedly be doing your credit report some short-range damage if you do not pay bills you could, and you may increase the likelihood of being sued. A debt relief company will often encourage you to take risks and sustain damage before they will or can negotiate for you. If it doesn’t work out that way, you are the big loser, and they simply find someone else to try it with.

My other objection to the way debt relief companies have done business is that they charge a lot for their services. It is my belief that most people can, if they really decide to do it, probably do as good – or almost as good – a job at debt settlement negotiations as the “pros” they hire to do it for them. After all, most of what these pros have going for them is simply the knowledge that that most creditors will, eventually, negotiate.

I have been asked about doing debt relief often enough that I have simply had to recognize that some people would feel more comfortable having other people negotiate for them even if they have to pay for that service. I have found a service that helps address some of my other concerns as well, the prepaid legal program I represent.