These are three very powerful words that I would have never thought to ask for except for Dave Ramsey’s, The Total Money Makeover. This is something that won’t work for everyone in debt, but will most definitely work for any person with accounts in collection. It is most effective with accounts that the total balance is past due.
To date, five companies have given me a settlement in full for less than the full amount owed. The total savings for me is a little over $2200. Some rules I have discovered for requesting the settlement are as follows:
- You must have enough cash to pay the balance you are proposing (usually 50 to 75% of the full balance owed).
- Try to have only 75% of the total amount owed when you make an offer. Then you can honestly say that is all you have today and you would like to resolve it today.
- If they refuse to do a settlement of any kind, still pay them the cash you have. (Remember the borrower is slave to the lender; I bought this ticket, not them.)
- If you owe personal friends money, don’t even consider offering them less.
A lot of companies have already used the amount you owe as a write off. Any money they can get from you is better for them, so it truly is a win, win situation; another of the Seven Principles of Highly Effective People by Stephen Covey. Be aware that the money forgiven by a creditor is taxable as income; although it is no big deal for us as we have enough losses from last year that we will be rolling forward the next five years, and still owe no taxes.
The last piece to the puzzle is where do you get the extra money from your budget? This one is easy; you follow the advice from one of my previous posts. You sell something, get another job, use your tax refund, or recycle your aluminum cans. You can get the extra money; it just takes intensity and sacrifice. Make sure you are still paying everyone else something.
Don’t miss my next post, I will be describing in detail how to do a zero based budget and will give you an excel sheet that you can download that has some really cool formulas built in. It should be posted early Friday afternoon.
I’m sorry but you can’t mesh “Absolute integrity” with the content of this page without sounding a little hypocritical. Peope can’t have integrity if they don’t *completely* pay off their debts. If they go for this settlement offer then they are breaking their word. You promised these companies you would pay back the money in full, with their terms and conditions. $2200 sounds like a cheap price for your integrity - although you don’t mention in the blog wether you settled or not.
Comment by Rhys — July 7, 2006 @ 5:58 am
I look forward to reading Joel’s response.
Comment by Amy — July 7, 2006 @ 11:54 am
Rhys,
I understand what could make you think this on the surface, but if you go a little deeper it is certainly not hypocritical.
First off, in our situation our debt had buried us. When we got to the point it was impossible to cash flow our business enough to keep the doors open we had to close. There were a variety of reasons it wouldn’t cash flow; mostly the amount of our payments combined with the fact I could no longer personally be there due to my military commitment and the amount of our debt that remained un-financed.
At the point we closed our doors my desire was to immediately pay everyone in full as agreed. This simply was not possible. Most people at this point file bankruptcy and are done. For my situation I did not see bankruptcy as a moral option.
As the months went by and I was able to start repaying my debts; I was so far removed from the original terms and conditions by no choice of my own (although from a situation I unknowingly created). Additionally, usury by many of the creditors became a major issue ($39 late payment fee that puts you over the credit limit which creates another $39 fee for exceeding the credit limit, which changes the interest rate to 39%, etc…). While I may have signed something agreeing to all those fees, I certainly did not knowingly sign it or have it explained to me prior to being given the credit.
In the above stated situation, I now am contacting the creditor to negotiate a new term and condition that is beneficial to both of us. They agree to this new term or condition (they don’t have to agree to this, it is their choice). I have no ethical issues with accepting or offering a settlement in full in these situations.
There are financial people out there that will tell you to quit paying on an account for six to nine months, and then come in and offer a “low ball” settlement. I would have serious ethical concerns about that.
I also have ethical issues with companies that practice such strong usury with the full intention of beating up a client and then later coming back and offering them a settlement. That is extremely unethical.
What I described totally meshes with absolute integrity. Two people are agreeing on a win, win scenario. That is ethical.
Thanks for your comment!
Comment by Joel — July 8, 2006 @ 2:20 pm
I have always wondered why people are so quick to defend the Federal Reserve members banks as being honest? I have yet to find proof that the member banks are giving you their cash for your cash. Why would anyone defend a member bank that endorses a practice of taking away you’re right to due process without truely explaining to you what it really means. The Senate is investigating them for controversal penalty fees that reached 17.1 billion in 2006,banks are turning credit cards into a self inflicted nightmare.
Comment by Steve — February 20, 2007 @ 10:51 am
Steve, for anyone who wants to know more about how the FED actually runs and operates you need to read this book. The Creature From Jekyll Island and I think the authors name was Howard Griffin. Very interesting read about how they run everything and do it fraudulently againt the original constitution.
Comment by Debt Settlement Advice — April 27, 2007 @ 9:32 pm
Hello-
I know that my debt doesn’t compare to your at all but it is still very stressful. As a single mother of a little girl I think about credit all the time. Once I divorced I got into financial trouble trying to keep up with my previous lifestyle. I’m sure you have heard it all. I have approximately $8,000 worth of debt. I recently have considered going through a debt relief program that offers to settle on your behalf. I have been hesistant in doing this because I feel like this is something I can do on my own and I have heard that paying a settlement instead of paying in full has a bad effect on your credit score.
My credit is already bad do you think that I should just go ahead and settle or try to pay off my debt. I am not sure what is the best option.
Any advise would be greatly appreciated!
Good luck with your goals! It was nice to find a website like yours.
Teresa
Comment by Teresa — May 15, 2007 @ 3:05 am
Teresa,
Glad you found my site. If it were me I would settle the debts myself and do it as soon as I could. I wouldn’t worry about your credit score; it really only matters if you plan to continue to stay in debt. I would just focus on paying everything off and saving money. Let me know if you need any specific help! Good luck!
Comment by Joel — May 16, 2007 @ 8:13 am
Teresa,
You are not alone with your debt challenges. Even the US government has debt! There are reputable companies out there and not-so-reputable companies that can assist you in consulting with you. The best ones will off a free consultation with an experienced attorney and advise you on your best option, whether that is debt settlement, debt management, credit counseling or bankruptcy (last resort). Many people have gotten into financial trouble through no direct fault of their own–some kind of hardship that has occurred. That might be death of a spouse, accident, divorce, illness, loss of a job, or even collapse of the stock market and their 401k. I agree with Joel that once you go back to the creditor, you are now renegotiating a mutually-beneficial resolution. Good luck with your debt challenges. Joe.
Comment by Joe, Debt Negotiation Florida — October 2, 2008 @ 1:30 pm