Debt-Free Forever (27 page)

Make sure you see the documentation from your creditors, which supports your debt-settlement company’s claim that interest has been suspended. Don’t just believe what they
say. If interest will continue to be charged while you are going through the process, know what those charges will add up to over the life of your debt-settlement plan.

If you think you’re a candidate for debt settlement, but don’t want to lay out for the fees, you can take a DIY approach. Here are all of the steps you need to take:

Step 1: Figure out where you stand.
Write down what you owe and to whom, and the interest rate you have been paying. (You’ve already done most of this work in Chapter Two, so go get your notes.) Do not include any secured debt like a car loan, a line of credit tied to the equity in your home, or your mortgage. Do not include co-signed or joint loans, since the moment you start negotiating, the creditor will go after the co-signer or joint signer.

Step 2: Get a copy of your credit report.
You want to see what’s already been reported so you know what your creditors are seeing. Look at your outstanding bills and identify how far behind on payments you are. Label the bills: less than 30 days, 30 to 60 days, 60 to 90 days, 90 to 120 days, 120 to 150 days, and 150 to 180 days. Remember that no one will even talk about settlement if you’re less than 90 days overdue.

Step 3: List your debts.
Now organize your list of the bills from highest amount owed to lowest. Your list must include the company you owe (their address, telephone number, and a space for their fax number), how much you owe in total, and how late you are on each bill. Leave some space
on your list so you can break out what you owe in terms of principal (what you actually borrowed) and fees/interest that have accumulated. You may have to look back over several statements to differentiate between what you spent and the interest you’ve racked up.

GAIL’S TIPS

Step 4: Create a budget.
You did this in Chapter Four, right? (You did, didn’t you?) Now it’s time to show your creditors just how much you have available to pay your debt so you can convince them the whole amount is at risk. You want to demonstrate that you’re serious about fixing your problem, but that you have limited resources with which to work and need their co-operation to solve the problem.

Step 5: Plan your strategy.
You can do your debt settlement
in one of three ways:

You can decide to offer a lump-sum settlement on the bill. You’d start by offering 25% of the outstanding balance, and negotiate from there. You’re aiming to settle for as close to 50% of the principal as you can.

You can decide to offer a short-term payoff. You promise to repay the full amount outstanding LESS fees and interest within three to six months. (You’ll be astounded at what you can save if the interest and fees are eliminated.) You’ll give postdated cheques if they wish, but only if you get an agreement in writing to waive all interest and fees and not deposit cheques before their due dates. Otherwise, they’ll bury you in fees.

You can decide to offer a long-term payoff. This should take no longer than three years. You’ll no longer use the credit, you’ll get a significantly reduced interest rate, and you’ll always be on time with your payment.

The best of these three options is the first. But that means you’ll have to come up with the money to make the settlement.

Step 6: Find the money to settle.
This is where the rubber meets the road.

• Will you get an extra job and bank the money strictly for your debt settlement?

• Will you reconcile yourself to a crappy credit history because you’ve already been sent to collections and stop making payments on your bills so you can bank that money?

• Will you sell everything that isn’t a complete necessity to come up with the money?

•
Step 7: Get ready for the collection calls and threatening letters.
If you decide to use debt settlement to get out of debt, you’ll stop making payments on your debt to force your creditors to pay attention. As soon as you’re three months late, your phone is going to start ringing off the hook. There are rules about when collections agents may call. But they will call. And your lender will send letters threatening to sue your pants off. When you took the loan, you did sign a legally binding contract. You’ve breached that contract and your lender can sue you. But they most likely won’t. Legal action is very expensive, and it’s often not worth the time or money it takes to collect on small to medium-sized debts. If you do get sued, don’t panic. Remember, you’re in this to get a settlement. Being sued is your lender’s way of forcing the settlement. And if they agree to an out-of-court settlement, the suit will go away. You can work it out.

Step 8: Prepare your settlement letter.
On page is a sample debt-settlement letter you can use as a guide.

Step 9: Call your creditors.
Starting with the guy to whom you owe the most, it’s time to make the call. Here are some things to remember as you do:

• Be polite and sincere in your desire to solve the problem. Getting angry and yelling won’t help your case. Neither will threats. However, letting your creditors know how desperate your situation is will, so tell them that you owe a lot of people a lot of money and you don’t have a snowball’s hope in hell of paying it all off.

• You have to “sell” them the benefits of your plan. Offer to fax them a copy of your budget and your settlement letter.

• Tell them how dire your situation is and that you have made the same offer to your other creditors. The guy on the other end of the line has to believe that it is in his best interest to settle with you or he won’t be motivated to deal. It is up to your creditors to accept your offer. They may come back with a counter-offer, and you’ll have to weigh whether you can come up with the extra money or not. If you cannot, be upfront and say that your resources are very limited. If you can, say that it may take you a little longer and that you want them to turn off the interest clock and stop any fees from building up while you come up with the extra money.

• Do not, under any circumstances, give your creditors your bank account information.

GAIL’S TIPS

Step 10: Keep detailed notes.
Get the full name of any representatives with whom you speak, along with their phone
numbers. Consider recording the calls. Yes, you can do this. As long as one party is aware a call is being recorded (that’s you), it’s perfectly legal in Canada. And keep every single communication they send you even after the debt is paid. Here’s one set of documentation you want to file under “forever.”

Step 11: Get it in writing.
Once you negotiate a settlement with a creditor or a collections agency, you must get it in writing. You MUST get a written settlement offer from the creditor or the collections agency in your hot little hands before making a single payment. If you don’t, the original creditor may choose to see your payment as a “partial payment,” or another collections agency may attempt to collect the balance from you.

GAIL’S TIPS

Step 12: Settle up.
Do not ever send cash to settle a debt. Use a cheque so that you have a paper trail for your payment.
Don’t send postdated cheques unless you have their agreement in writing not to cash them before their due dates, since some creditors try (and succeed) to cash them all at once and that’ll set your bank account twitching.

Step 13: Check your credit report.
Wait 90 days and then verify that your credit report has been updated as agreed. If not, send a copy of the settlement letter to the credit bureaus and request in writing that your information be changed as per the agreement.

Step 14: Rinse and repeat.
Yup, it’s time to call the next creditor on the list and go through the whole process again.

Please, do not become so desperate about your debt that you fall for the predatory promises of fly-by-night companies offering to save you thousands and put a stop to collection calls. While I’m not overly fond of credit counselling services—you do know that these guys are funded by credit card companies, right?—they are sometimes a better alternative to paying huge fees only to end up two steps back.

Debt settlement is a time-consuming process, and lots of people just aren’t up to the task of figuring out the ins and outs so they leave it to credit counsellors. But know that if you can DIY, you’ll likely get a better deal. And you have the option of negotiating to save your credit history. The moment you sign on with credit counselling, you might as well have gone bankrupt, because future lenders view the R7 of credit counselling the same as the R9 of bankruptcy for lending purposes, and you’ll be as popular as a fox in a henhouse.

Whether you choose to do it yourself, seek help from a debt-settlement company, or go to credit counselling or a bankruptcy trustee, you must have a plan to make sure you’re never in this position again. That means making a budget that will work and sticking to it. And it means accepting that if you can’t pay for something today with cash, using credit is only going to start you back down the road to Debt Hell. For heaven’s sake, learn the lesson and don’t make the same mistakes again.

Your name

Your address and telephone number

The date

Your creditor’s name

Address

Re: The account # you’re settling

I, (your name in full), wish to settle the outstanding debt (account number) with (name of creditor).