Imagine that you owe $1500 on a debt that is more than 1 year old. 

Since you haven’t had any money, you have not been making payments on it and now the creditors is starting to get worried that you will never pay your balance owed. 

 

If you all of a sudden come into a small amount of money (for example, you now have $400 that you could put towards this debt), follow these steps to make the most of that $400 payment.

Step 1:  Initiate contact with the creditor or collection agency and inform them that you would like to settle your debt.

Step 2:  Request that all penalties, fees, and late payments are removed from your account.  Often, creditors will do this because they want to recover the original amount owed and at this point, have no hope of being paid the full amount.  Also, this will help you significantly, since often the late fees and other penalties can really add up.

Step 3:  Negotiate the amount of your debt settlement.  There are a couple things you can use to help you negotiate a lower settlement payment.  For example, if your loan is about to reach its statute of limitations (the length of time for this varies by state), then the creditor will be more likely to negotiate a good settlement. 

Another option is to mention that you are also considering bankruptcy – this will often scare the creditor into believing that they will not receive anything from the loan, and they will be more likely to settle.  Often, you can negotiate a payment that is 35% to 50% of the original debt amount.

Step 4:  Negotiate for a complete removal of negative comments on your credit rating. 

While this is harder with some creditors than others, you should still try to have this included in your agreement.  If you are having trouble getting the creditor to agree, mention that you might instead choose to put your money towards a debt with a different company who is willing to agree to remove negative information from the credit report.