A lot of people lately are wondering if you can settle credit card debt without a "credit counselor".

 

Credit counselors actually do not settle debt.  Typically, they only reduce the interest rate of your debts.  They then add on their monthly fee, and then collect from you one payment a month for all of their efforts, then from that payment, they are suppose to pay your creditors. 

Here's a quick step-by-step guide for you to accomplish your goal of settling credit card debt yourself:

First let's clear up a few things, then I have four considerations.

1.  It will take a lot of time to document, communicate, negotiate and follow up to achieve results.
2.  There are many strategies and factors to consider that impact results.
3.  There are plenty of pitfalls to avoid.
4.  Settling yourself for 60%-70% of the original debt can be a reasonable goal.

Industry professionals and insiders I know tell me overall, "doing-it-yourself" consumers settle credit card debt on their own for about 75% on average. I've known some professional credit counselors who had their debts settled to 10% of the original debt, but this is only because they were willing to go the extreme distance and knew exactly what they were doing. These people are the exception.

Professional negotiators these days (including attorneys and arbitrators) average about 50% settlements (some much better than others), and usually charge about 15% in fees (may vary by program type), putting the total cost to use a professional debt settlement service at an average of about 65% or less of your total unsecured debt.

Creditors do give professionals representing a large volume of debt "special treatment" because large professional negotiators are the "bread and butter" for most collectors these days. They deal with each other every day. When a professional debt settlement negotiator comes to the table representing millions of dollars of client debt held with a single major creditor, this creates serious leverage for the consumers represented by the professional. Creditors are willing to settle for substantially less than individuals would normally ever be able to achieve on their own.

Still, many people are very successful in settling debts themselves.  There are three steps that you must go through to settle your debt:

1.  Your accounts must be delinquent.

I would never advise someone to deliberately make a debt delinquent, however, if your debt is already delinquent, creditors will not settle for anything less than the full balance until your accounts are seriously past due.  Typically, it is about 180 days after they've been charged off.  This is because when creditors charge off an account, they are taking a tax benefit on the account by writing it off as a loss. This de-values the account, and it is no longer worth the full balance owed. In fact, the normal course of business is to sell the "bad debt" to a third party debt collector.

In 2006, "bad debt" was sold to collectors for an average of $0.034 cents on the dollar. That's 3.4%! Keep this in mind. This is exactly WHY debt settlement works so well, because it's a better deal to the creditor or collector than any other option, such as a lawsuit, collections or bankruptcy.

With the economy getting worse and bad debt expected to more than double in 2009, expect the value of bad debt to drop, which means better settlements and more savings for you!

2.  Make agreements through writing, anything agreed to over the phone now can't be proved later.

DO NOT make any payments by phone.

Collectors will almost always ask for a check by phone. If they ask, tell them:

"Unfortunately I'm unable to make a payment at this time; and am hoping to bring resolution to this matter as soon as possible. I understand you want me to make a payment right now, but that just isn't possible. I will have $_________ (state an amount that's roughly 35-50% of your balance, not a percentage but a round number) soon and want to settle at least one of my accounts with whoever will give me the best deal. Can you please send me an offer in writing?"

You can  do this initially or in response to a settlement offer that's too high... Write a "Hardship Letter". Hand write or type up a letter describing your situation, your inability to pay and include information such as, divorce, medical issues, loss of job, disability or reduced income. Any information regarding your personal hardship will help your negotiation, so don't hold back. Send this letter along with a request to settle the account for $_______ (again, a random amount roughly equal to 35-50% of your current balance).

Talking sincerely about your financial hardship, lack of income and inability to pay when requesting a settlement offer over the phone can help a lot. Think sob story, but be sincere.

Document everything that goes on.  Always get who you spoke to, their name, phone number and extension, date and time. Keep everything organized in a folder, and keep it easily accessible.

3.  Use certified mail with return receipt.

Once you get an acceptable settlement offer in writing, send a check.  Make sure to write your account number for the account you are settling on the check and in the memo write "FOR PAYMENT IN FULL".  Send the check along with a COPY of the settlement offer certified mail with return receipt.

Once the account is paid to a zero balance, then you can do the normal process of credit repair and possibly have the account removed through disputing it and requesting verification.

Doing debt settlement yourself vs. having a "professional" do it.

 

Anyone who goes through bad times would typically prefer just handing it over to a pro to have it fixed.  Unfortunately, there are very few effective companies that settle debts, and do it in the debtors best interest.  In fact, many of them are scams, that take advantage of someone.  It's generally known that some of these actually end-up charging more per month, for more years, than the original debt that the debtor originally had to deal with.  Also, once you are done settling your debts, that most credit repair companies also tend to be scams as well, and that the only real repair is to fly right, and do any credit repair yourself.