Heavily in debt and not sure what to do? Here are three steps you can take to help get yourself debt-free.
1. Contact Your Creditors
Talk with a manger or representative who has the power to negotiate and make decisions. Tell this person your situation. If the business is close enough, see if an appointment in person would be possible. After any conversations, write down, sign and date your recollections.
Your goal is to try to settle your debt for less than you owe. If possible, avoid restructuring your monthly payments because while they may be lower each month, they increase your long-term debt. However, this is a better alternative than bankruptcy, which should always be a last resort.
Settling for less than you owe will happen only if you have enough lump-sum money and if you’re too far behind on payments for the creditor’s liking. Offer an amount somewhat below the lump sum you’re willing to settle for and accept a counteroffer if it’s affordable. Creditors will settle for less so they don’t have to waste money and time by turning your debt over to a collection agency. You may be able to settle for as little as one third of the balance you owe, although half or two-thirds is more realistic.
3. Cover Yourself After You Settle
Ask for paper copies of the agreement and compare them to your notes. Ask the creditor to change your credit file to reflect the settlement, and check your credit reports to make sure this was done. Also keep in mind that part of the forgiven debt may be considered income by the IRS. Talk with a tax adviser, and do not settle if you have to pay more in tax than the amount of absolved debt.