Winning a debt settlement negotiation is about knowledge and skill. If you know what to say and how to say it, you can get any creditor or collection agency to cut your delinquent bill or bills in half. Before you contact the creditor, know how you want to negotiate your credit rating, what should be in the agreement, how you should pay them, what happens if you default on the agreement, how to stop the lender if they try to collect the difference, and how is the IRS involved.
Settlement negotiations - How do I negotiate my credit rating?
For exchange of your payment, ask the creditor to delete the negative item on your report. If you can't get a deletion, go for a paid as agreed, current account or unrated status. Avoid negative listings like account closed, paid, paid charge off, settled or repossession. In addition, you want paid in full with no further collection on this account indicated in your agreement. If the creditor does not agree with any of your requests, don't pay them.
Settlement negotiations - What should I include in the agreement?
First, have a lawyer review your agreement, and make sure all of your terms are in the agreement before sending any money. You can draw up the settlement or wait for the creditor to send it to you. Send your agreement out and wait for the lender or collection agency to sign it before sending it back. Ask the financial institution to send the agreement by fax followed by a letter.
Settlement negotiations - What about paying them?
Once the lender signs the agreement, you can send the payment with a copy of the settlement agreement by a wire transfer, quick collect, overnight mail or Fed Ex. Please do not use a check because the creditor will obtain your checking information and start taking out payments. Instead, use a cashier's check, money order, or a prepaid credit card with the exact amount. Make sure you keep and store your receipts in a safe place.
Settlement negotiations - What if I don't keep my agreement? What can happen?
If you don't meet your obligation, the creditor will reinstate your original terms and add late fees and over the limit fees. In addition, your interest rates will go up and you can possibly even be sued.
Settlement negotiations - What if they try to collect the difference in my settlement?
In some states, these actions are illegal, and you will have to write the creditor and let them know that. Other states allow collectors to come after you for the difference. If this is the case, you will find that the creditor has written or stamped the words “under protest” or “without prejudice” on your check.
Settlement negotiations - How is the IRS involved in the debt settlement?
When a creditor settles a debt for less than what's owed, they have forgiven the difference on what you owed. The creditor must report any monies forgiven over $600 to the IRS for tax purposes. The creditor will also send you a 1099-c indicating the amount you saved in the settlement. Because you got a deal, the IRS considers the money as a gain to you and therefore, income. By law, you are required to pay taxes on this gain.
Concluding, always stay in control when it comes to negotiations, so that you can achieve your ultimate goal, which is protecting your credit rating and saving money. Now that you are empowered with more information, go out there, and take action.
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