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Debt Settlement Tips

Posted by attorney Jonathan Stein

People have problems with credit card and other debts on a regular basis. Debt collectors file hundreds, even thousands, of lawsuits each year to collect money, when most of these cases could be resolved without litigation. These five tips will help you resolve your debt case before you are sued and before you incur the expense of an attorney.

Call the creditor when you first get behind in payments.

Creditors do not want to write off the debt and sell it for pennies on the dollar, so they are interested in working with you if they know you are willing to pay the debt. However, you must call the creditor as soon as you start having problems, which usually means as soon as you miss the first payment.

Be realistic about your situation.

If your situation is temporary due to an increase in bills from a medical incident or a short-term drop in income, explain to your creditors how things have changed. However, if you can't pay your bills and don't see your situation changing in the near future, then you may need to consider filing for bankruptcy ( While no one enjoys a bankruptcy filing, in some cases it may be the best option. For example, if you have a large amount of debts and your assets are limited, you should consider bankruptcy. Or, if you have no income for an extended period of time, you should consult with a bankruptcy attorney.

Avoid credit counseling agencies.

Consumer credit counseling agencies work by taking your money and waiting until you get behind in your payments. They then try to negotiate with the creditor, offering a percentage of your monthly payment to the creditors and keeping the difference as their fee. However, not all creditors will work with these agencies, and even the creditors that do will usually give the consumer a better deal directly.

Consider the implications of any settlement.

Sometimes a creditor will be willing to accept a smaller amount than you owe. For example, you may owe $10,000 but the creditor may accept $8,000 as payment in full. The $2,000 may be considered income to you, so consult with a tax advisor about the settlement and any tax implications it may have.

Do not threaten to hire an attorney to sue a creditor.

Plenty of people may tell you that you need to be aggressive and threaten to sue a creditor, but in most cases this is bad advice. Creditors take a dim view of borrowers who begin the process by threatening to hire an attorney or threatening to sue them. Here is where the old expression "You can catch more flies with honey than with vinegar" really applies.

You can resolve your debt issues without hiring someone to do it for you. By working with your creditors directly you can usually avoid harassing calls from pushy debt collectors. Be up front, be realistic, and attempt to work with your creditors. If all else fails, consult an attorney to advocate for you and to protect your rights.

Additional resources:

National Association of Consumer Advocates (

Bud Hibbs' Consumer Web site (

Related Legal Guides:

Debt Negotiation (

Fair Debt Collection (

Bankruptcy or Debt Negotiation: A Comparison (

Declaring Bankruptcy (

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