How To Start the Debt Settlement Process

Written By Mary Beth Eastman
Last updated December 28, 2019

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Personal Finance
May 4, 2018

Simple. Thrifty. Living.

If you have a significant amount of debt that makes it difficult for you to reach life milestones like buying a home or having a child, then you may want to consider using debt settlement to get your finances under control.

Starting the debt settlement process isn’t difficult, but there are a few things that you should know. Follow these four tips to make sure you get the most out of your debt settlement.

Debt settlement requires negotiating with creditors to agree on a repayment amount that’s lower than your actual debt. Some people negotiate with their creditors without getting help from professionals. If you don’t mind spending a lot of time gathering documents and arguing with creditors, then you could potentially settle your debt on your own.

Most people, however, need help from debt settlement companies that have experience negotiating with creditors. Some reliable debt settlement companies to consider include:

Many debt settlement companies advise their clients to stop paying their creditors. It’s important to realize that this will hurt your credit. If the strategy works, though, it will encourage your creditor to write off your debt, which often makes them more willing to settle for an amount that’s less than you owe them.

Instead of paying your credits, you will start depositing money into a new account. As the amount of money grows, you will establish some leverage over your creditor. If you can offer to make a large payment at once, then the company may decide that it’s worth getting what it can instead of pestering you about more late payments in the future.

Create a Repayment Schedule

Alternatively, you and your creditor may decide to create a repayment schedule that eliminates your debt within two or three years. If you choose this option, make sure that you send all of your payments on time. You don’t want to lose your opportunity to get out of debt as quickly and affordably as possible.

Debt settlement isn’t a great option for most people. It will likely ruin your credit history for several years. Ask yourself if debt settlement will be worth it for you. If it’s impossible for you to repay your debts, though, follow the debt settlement process and focus on rebuilding your credit.

About the Author

Mary Beth Eastman

Mary Beth Eastman serves as the content manager for Simple. Thrifty. Living, where she is dedicated to helping readers use money and credit wisely. Mary Beth believes that access to the right financial information paired with a growth mindset are essential tools for getting out of debt and building wealth. Mary Beth has a degree in Journalism from Bowling Green State University and has focused her 20-year journalism career on putting readers front and center, carefully considering their concerns and presenting information that will help them in their everyday lives. She has won numerous statewide journalism awards. Her writing on personal finance as been featured on numerous websites in addition to Simple. Thrifty. Living, including Huffington Post and Lexington Law blog. Mary Beth resides in Pittsburgh, Pa., with her family and two rescue dogs.

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