Paying off debt can be time consuming and frustrating, especially when finances are low. The rewards of clearing your name and rebuilding credit trust make the struggle worth the effort. In the previous article there were four key things to initiate and maintain before making arrangements to pay on debt â€“ stay in contact with the creditor(s), keep accurate notes, organize paperwork and bills, and start putting money back in savings. Now it is time to contact each creditor and set up payment arrangements.
Cutting the Deal
Debt management companies will work with your creditors to negotiate a lower pay-off balance and interest, as well asÂ collect and submit your payments for you. This all comes with a fee and can sometimes add up to a substantial amount.
Why turn $1000 debt into a $2000 liability? You can save this amount by contacting the creditors directly and use the savings to pay off the debt. Only you can make the call as to whether you should use an outside agency to assist you. Just keep in mind that your creditors can still add late charges, extra fees, and even take you to court for lack of payment, even though an agency is working on your behalf.
When you are ready to call a creditor, follow these suggestions:
- Know the amount owed â€“ Time to pull out that file folder created earlier. In order to negotiate a lower settlement amount, you have to know the current balance. Creditors may offer to reduce the debt amount by 25% if payment arrangements are made the day of the call. The amount owed will give the ball park amount to negotiate around.
- Know the maximum amount you can pay â€“ You have set aside money, but not enough to cover the entire amount owed. If at all avoidable, do not negotiate over the amount you can afford. Once you agree to an amount, payment is expected on time. Penalties and repercussions are forthcoming to those you promise to pay and default, especially after leniency.
- Set a budget â€“ Most creditors may offer to divide the bill into three consecutive payments paid over three months. These payments are usually drafted directly from a designated checking or savings account. Make sure you can afford that extra monthly payment before agreeing to it. Some companies will immediately demand the entire balance due once payment has defaulted.
- Be honest but persistent â€“ At the beginning of the conversation state the amount you are ready and willing to pay over the phone to satisfy the debt, even though most companies will not take payment over the phone (ex. â€œI would like to speak to someone in order to arrange a settlement for my debt. I can pay $500 right now to satisfy the entire balance.â€)
Remember that debt is business and creditors want to make a profit. They typically want to accept at least 50%. Donâ€™t expect the offer to go below the amount you initiate, so be conservative, but realistic, with the first offer. A $200 offer for a $3000 debt is more of a miracle and not a standard negotiation.
Making the Payment
A payment arrangement can be set up for automatic deductions from your savings or checking account. This is the common practice. Money order or check payments are generally accepted for balances paid in full. Only you can decide if this type of payment arrangement is best for you. If there is unease with giving out this information, negotiate with the representative or talk with the manager to arrange for a different type of payment.
Keep watch on the account. Do not be surprised if payment is not deducted on the arranged date. Typically, the amount will be withdrawn between 1-3 days after the prearranged date. Dates falling on or before a weekend or holiday may take an extra day or two before showing up on an online banking statement.Â
There may come a day when you will not be able to make the arranged payment. Whatever the reason, call the creditor at least three days before payment is due to arrange for the date to be pushed back.
Remember those four suggestions from the first article? Continue to practice them. Just because payments are being sent do not mean something cannot go wrong. Keep bank records and/or check copies for all payments submitted and dates they were cleared. Keep a calendar of all payment dates. File all correspondence sent and received.
Once the debt has been paid off, wait three weeks and then call the agency back to have a letter sent to you stating the debt has been paid in full. Be prepared to ask for this confirmation letter more than once. Make a few copies of it when it arrives and keep it, along with the envelop, in the file you created earlier.
Make sure the creditor has sent documentation to all three credit bureaus stating that the debt has been satisfied. Statements are usually sent at the end of the month. Request a copy of your credit report to note the update and place it in the file as well.
Expect your FICO score to increase after paying off the debt. The score may not go up substantially, but a little improvement is better than no improvement. The more debt you pay off the better the score will be. Â