Friday, November 30, 2007

Settlements: You feelin' lucky, punk?

So you're at the mailbox rifling through the "gifts" left to you by the mailman. Some you're looking forward to cracking open (say, your last subscription to Hot Elves weekly, yowza), some you're mildly annoyed with (say, another middle aged housewife book club membership subscription) and some you're dreading (that suspiciously ticking package from Discover Card.)

You swallow your discomfort and reluctantly tear open yet another invoice asking for payment in full. Payment that you'd very like to have on your person, but alas, you unfortunately require a meal or two a day.

But instead of big, red, bold letters threatening your physical well being you see a curious word. Settlement? It's next to a number that's a lot lower than the number you think should be there. "What's this," you think "is my luck finally turning around?"

Short answer? Yes. Long answer? No.

But let's back track, shall we? What exactly is a settlement, and why would anyone you owe money to be willing to accept anything less than every single penny in full, with interest and perhaps some sort of fees thrown in there for good measure?

If you have a delinquent account, chances are it's for good reason. Maybe you've hit a rough patch and simply can't afford to pay the minimums.

Maybe they've been attempting to contact you for some months now and you either haven't responded, or you've brazenly told them to screw off. On a number of occasions. With a lot of swearing.

Regardless of the circumstances, if you're seeing a settlement option chances are the credit company has more or less figured out that unless they change their tactics, they're not going to get a nickel out of you. So they offer a settlement. The degree will vary from person to person and from credit card to card, but essentially they're offering to make a compromise with you.

Their deal is this: Pay most of your debt with us in a sort of short time span and we'll forget about the rest.

The logic in the back of their heads is that you, the person in financial trouble will appreciate the gracious credit corporation willing to cut you some slack. That you might be able to say, come up with 75 percent of the amount due if it's going to save you 25 percent in the long run. Because after all, you probably already have bigger concerns, right?

More often than not you will receive a settlement deal from the credit company, not the other way around. If everyone was allowed to simply call up and ask for 25 percent knocked off of their amount due, well, let's just say that American Express would be no more.

What do you do when you're offered a settlement? Here are some tips.

  1. Examine yourself: You read me right, hombre. How is your financial situation doing? Have you just discovered that you have a very large number hanging over your head? Do you have money, but can't be assed to pay the bill off?

    Your ultimate goal, in any situation where you owe a lot of money is to pay it off in full. So if you are actually capable of paying it off without a deal, do so.

    Why? Well, this isn't some secret deal you're weaseling into. The company you're settling with is going to record your actions and place them right onto your credit report.

    Sure. Settled In Full is going to look a heck of a lot better than Delinquent Account, but it's nowhere near as good as Paid In Full. Consider a settlement a gray stain on your credit report. Not good, but not terribly bad.

    It may affect your ability to obtain a business or home loan, you may find your car loan having a bit higher of an interest rate than you've previously experienced. Et cetera.

    Plus, paying it in full is the responsible thing to do. Sure, you have to do what you have to do, but if you pay it all off you're going to have a greater sense of self respect.

  2. Examine the deal: Okay. You've examined yourself and your budget and a settlement seems to either be the only option, or at least the best one. Examine it. How much would you save if you did settle?

    Would saving something like 5 percent be really worth the stain on your credit report?

    Most settlements require you to do several large lump sums over a short period of time. Can you manage that? Most settlements also require you to set up automatic withdrawals. Are you okay with that? Are you responsible enough to make sure the money is there before it disappears? It's okay if you're not, but make sure you are before making the decision.

  3. Haggle: You've examined the deal. Maybe you think you could just swing it if they popped off another 5 percent or so. So call them up and speak to someone authorized to negotiate the outstanding balance. If you're going to settle you might as well save as much as you can.

  4. Obtain a hard copy: You're diving into the legal world. Get hard copies of everything you agree to do. This is especially important if you're dealing with a representative over the phone.

    Record their corporation (if different from the company you owe money to), their name, number, extension, date and time of call. Also write down their proposal (say, a settlement of $3,000 out of a $4,500 debt) and then ask for a copy of the settlement deal to be mailed to you immediately. Since you're showing an interest in paying it off, they're going to be pretty accommodating.

    Once you have the paperwork, make copies and keep it safe. If there are any questions at a later period, you'll need them as a reference. Maybe proof if there is a little bit of confusion on the credit companies end.

  5. Keep it up, and remember: So you've done everything referenced above. Now use it to your advantage. You've knocked out one balance. Now you have more power to direct at the other debts that you've accumulated. So you probably don't need to settle any additional accounts.

    Get a calendar. Mark off the automatic withdrawal date, or payment due dates. Remember the actions that drove you to this situation. Since you've agreed with the credit company to settle your outstanding balance, you should keep your end of the bargain. Selfish or not, their willingness to meet you at a compromise did cut you some slack. So show them you're responsible enough to follow it through. Why? Because you are.
So long as you go pay attention and take it one step at a time you'll make it through the settlement, even if you decide to say no thanks and pay the balance in full.



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