Singing the debt settlement blues

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Dear Debt Adviser,
After years of bad financial decisions, I read with interest your advice concerning debt settlement. We did try this once, with catastrophic results. Last spring, I decided to tackle this on my own. I wrote to the creditors I could remember, asking for the balance due and what payment options we had.

We received letters concerning two outstanding balances. One was willing to make payment arrangements and that debt has since been paid off. The other wanted the entire amount right then. I wrote them saying that was not possible and that I would pay a certain amount each month, increasing it as I was able. They did not reply, but I have sent four payments to them. Was this the correct way to do this? What should I do about the ones that did not reply? Thank you.
— Mary

Dear Mary,
You did just fine, for a start that is. There is always a near-term risk in reaching out to creditors about debt settlement. But in the long term, getting these debts put to bed will prove to be a smart move. From your point of view, you are trying to make things right. From the lenders’, you may or may not be sincere and they have better things to do in their increasingly busy day, what with the number of foreclosures, delinquencies and bankruptcies they are experiencing. So, because you were the one who originally fell down on your end of the loan, I suggest you keep trying to get in touch with them and try not to be too surprised if they aren’t thrilled to hear from you.

Rather than relying on your memory to tally up who you owe and for how much, I suggest that you get a copy of your credit reports (for free) at You are eligible to get one free report each year from each of the three bureaus at this site. Once you get your reports, you should be able to figure out who you need to call or write about debt settlement.

Creditors often ask for full payment or other seemingly unrealistic terms rather than opt for affordable debt settlement. In the end, the financial reality is that you can only offer a payment that you can afford. Committing to a payment amount that you cannot afford because a creditor attempts to scare you or you just want them to go away can compound the problem. It is much better to offer to pay what you can realistically afford and stick to it.

Be sure to keep copies of any letters and take notes of when you called and to whom you spoke. I want you to keep good records because, should any of your creditors decide your best efforts at repayment are not good enough and choose to sue you in court, your records will prove to the judge that you did make a reasonable effort to pay what you owe. If you are summoned to court by a creditor, be sure you attend the hearing and I also recommend you hire an attorney. I realize an attorney is an added expense, but your creditor will have an experienced attorney and you deserve to have competent legal expertise to represent your side of the story.

To assure that you are doing the best you can in your repayment efforts and to gain some professional insight regarding your finances, you could contact a nonprofit credit counseling agency for a thorough review of your situation. You already know about the perils of using a debt settlement company, so you don’t need my advice to stay away from them. With some luck you may get a better response to your offers now than you did before. Many creditors have revised the concessions they are willing to make to get an account paying again, once they know you are serious.

Lastly, don’t be overly concerned about your credit while you are doing your best to repay what you owe. A good credit rating is important and yours will get better with time. Keep your focus on making your best effort and all will get resolved.

Good luck!

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