3 Considerations before Attempting Do-It-Yourself Debt Settlement

Do-it-yourself debt settlement can save you on the fees you would incur when working with a debt settlement agency. These fees may not always be disclosed up front, and they can get very high, cutting into the potential savings of your settlement. While the benefit to do-it-yourself settlement is high, there are unique risks when you attempt this alone.

#1 Legal Considerations

The first risk you have to be aware of when settling any debt is the legal requirements of debt settlement. A loan contract is a legally binding agreement. If you settle the loan, the loan contract must be amended to show that you sufficiently met the debt by a means other than that agreed upon in the original contract. There are potential "errors and omissions" challenges in this process. Simply put, "errors and omissions" is a legal term that refers to a contract that is not sufficiently prepared to stand up in a court of law. You may think you settled the debt, and the lender may tell you the debt is settled. Down the line, though, the lender can call the contract into question if the change is not properly reflected in writing. A debt settlement agent or attorney will always double check a contract. Doing this yourself leaves you exposed to a potential error in how this part is handled.

#2 Affordability

Most debt settlement companies offer to extend you a loan in order to make your lump sum payment. This loan is not just a convenience: it can actually be necessary. You may think you can cover the expense with a recent bonus, cash gift or inheritance. Even if you pay off the loan, though, you should be cautious of completely draining your savings in order to do so. The savings you have acts as a cushion if you do experience a future fiscal emergency. You should hold on to at least three months' salary in savings at all times. Many borrowers simply will not have the cash to hold on to this amount of savings and still meet the settlement quote on a large loan. Consider using a part of your cash and a small loan in order to meet the obligation instead of totally draining your liquidity.

#3 Settlement Negotiations

Negotiating a settlement is not as easy as giving a quote and hoping the lender accepts it. You will have to show the lender why the settlement is a loss mitigation strategy. Basically, this means providing actual documentation that proves the lender will lose money by allowing the loan to continue because default is likely. Most debt settlement agents will have facts and figures to help prove this point. For example you may be trying to settle because you have lost your job. You will need to show there is not a good chance you will be able to secure a job in the immediate future. Providing unemployment statistics in your industry is a good way to do this, and a settlement agency may have this research prepared and at hand.


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