How to Prepare Yourself for Debt Negotiation and Settlement

Facing debt negotiation and settlement can be intimidating. However, you can succeed at negotiating and settling debt by preparing carefully for the process. Here are a few ways to do that.

Debt Settlement

The process of debt settlement can help you eliminate many of your debts through negotiation. You will talk to your creditors, agree to pay them a sum of money that is less than you owe, and then make one lump payment to each. This is a practical choice when you receive a lump sum of money and wish to eliminate certain debts quickly. It will not work on all debts; however, it can work with credit cards, store accounts, and medical debt.

Secure Proof

Before you actually get into the negotiating process, you need to make sure that you owe the money. You need to contact your creditors in writing and ask them to prove the debt. They should be able to send you itemized statements that show whether or not the amount requested is valid.

Collect Necessary Documents

The first thing that you will want to do is collect all of the documents that you will need for the process. Get together all of your account statements from any accounts that you plan on settling. You will need your bank statements, any investment account statements, and any other relevant financial documents. 

Assess Your Debt Situation

In order to know whether debt settlement is the best option for you, you should know exactly how far in debt you are. Once you have all of the proper documents in place, add up all of your outstanding debts.

Determine Potential Payments

In addition to looking at your debts, you should also look at your other financial information. Determine exactly how much money you can apply to a debt settlement if you are going to pursue one. See how much you have in investment accounts, in your bank account, and in any other areas. Determine how much money you could afford to pay each month if the creditors prefer a monthly payment option. Knowing how much money you have before the process starts can prevent you from getting in over your head. 

Get Help

Before you go through any major debt settlement process, you should seek experienced help on the matter. There are a number of sources that you could potentially get help from in this situation. A non-profit credit counseling center could be a valuable asset to you. You could also seek the help of a debt settlement attorney. They could evaluate your situation and tell you whether or not debt settlement is your best option. They may recommend instead a debt management plan or even bankruptcy.

They will also show you the negative consequences that come with debt settlement. They will make sure that you understand the impact that this will have on your credit and make sure that you still want to go forward. They will also explain the tax liability that you will have if you settle your debt. Any debt that is canceled in your name will count as income for that year. Therefore, you will have to pay income tax at your marginal rate on the amount that is canceled. 

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