How to Settle Debts Yourself

When people find themselves in over their heads in debt and unable to make at least the minimum payment due each month, many turn to a debt settlement company for help reducing the amount they have to pay. Debt settlement companies get fees in exchange for negotiating with your creditors. You can save even more money when repaying your debts if you settle debts yourself. Here’s how to get started:

Step One: Make a list of all of your debts, including who you owe, how much you owe, and the amount of interest you are paying.

Step Two: Request a free copy of your credit report from and check to see whether your debts are held by the original creditor or if it has been turned over to collections.

Settle Debts With the Creditor Directly

Having some money in the bank to make a bulk payment to a creditor to settle the debt is going to offer you better results than offering to make a payment plan. If at all possible, borrow money from a family member or a friend to settle debts – or stop paying your creditors while you save money to make a one-time, settlement payment, but be prepared for phone calls and letters while creditors attempt to collect a debt. If you are unable to borrow or save to make bulk settlement payments, you can offer a payment plan to settle the debts.

For any debt you owe that is still held by the original creditor who loaned you the money, follow the following steps to settle the debts:

Step One: Determine how much to offer each of the creditors on the list. Ideally, you would offer a one time settlement payment of 40% to 60% of the total amount of debt you owe. If you’re unable to come up with the money to make that one-time payment, figure out a short-term payment plan to eliminate 40 – 60% of your debt on each account within a few months time.

Step Two: Contact your creditors you wish to settle your debt with by phone, and explain your settlement offer. Let them know that you are making a similar offer to each of your creditors and the accounts that accept your settlement offer are the ones who will be paid first.

Step Three: Request an acceptance of the settlement agreement in writing.

Step Four: Follow the settlement agreement you created.

Step Five: Request a “paid in full” letter from each account as it is settled.

Step Six: Request a new copy of your credit report to make sure it is being updated each time you settle a debt. (Allow three months after settlement for changes to take place on your credit report).

Settle Debts With Collection Agencies

If your debt has been sold or transferred from the original creditor to a collection agency, follow the following steps to settle the debts:

Step One: Send a debt validation letter requesting the company verify you owe the money. The reply should include proof that the collection agency now owns the debt from the creditor, a payment history of payments you made from the day the account was opened, and a copy of your original signed application or debt agreement. If you do not get this validation from the collection agency, let them know they are violating the Fair Debt Collections Practices Act and the collection listing must be removed from your credit report.

Step Two: For all debts that are validated by the collection agencies, call the original creditor and ask them to take back the account so that you can make payments on it. (Then follow the steps above for settling an account with a creditor).

Step Three: For any debts that cannot be transferred back to the original creditor, offer the collection agency a lump sum to settle the account, if possible.

Step Four: If you are unable to make a lump sum offer on a debt, let the collection agency know you are unable to pay the amount in a lump sum, and offer them a new payment plan to settle the debt. Do everything you can to pay the accounts as soon as possible so that you do not have to deal with collection agencies for very long. The sooner you pay your debts off, the sooner your credit score will recover and the better your financial position will be.

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