Have you stashed some savings, received a tax return, or landed a year-end bonus? If so, you may be considering settling one or more of your credit accounts.
We look at how you can navigate this process, and manage it to your best advantage.
Tip: Debt consolidation can see you settle your debt sooner. Sign up for here for debt consolidation for more information.
What is debt settlement?
In short, debt settlement involves a consumer paying off their outstanding debt in a lumpsum payment. This amount is typically calculated as a percentage of the balance of the debt.
Depending on your payment history, creditors may offer a discount on this amount, and it’s certainly worth trying to negotiate for this.
While this may sound straightforward, negotiation can get complicated. To assist, we’ve prepared a few steps and tips.
How to prepare for one debt settlement payment
Total your debt
In order to understand how much it is that you owe, and the amount you will need to settle, you need to understand your debt. This means contacting your creditor, or creditors, and requesting the total of your outstanding balance, or balances. This will enable you to make a wise decision about which debt you should settle.
Negotiate carefully
When you inform your creditors that you want to settle your account, they will typically work out a settlement amount. This amount is usually presented as a percentage of the total balance, and may include a discount.
Creditors will usually stipulate an expiry date on the settlement quote. This creates additional payment pressure. For this reason, it’s vital that you negotiate an amount with which you are comfortable.
It’s also essential to get the offer in writing. Once the creditor has agreed to the amount, request that it be emailed to you for reference.
“Ensure this is signed by the creditor so that they can’t go back on the agreed-upon amount,” adds an Absa in-branch consultant.
Request a paid-up letter
Once you have settled your debt, ensure that the creditor sends you a paid-up letter via email or post. This will be your receipt and proof of settlement, and it’s important to have, should the creditor at any point dispute the settlement.
While it’s mandatory for the creditor to send this, it’s wise to follow up.
Request a credit report update
If you have slipped up on payments for any of your debt, your credit score will be negatively affected. Irrespective of whether this is the case, it's vital that you ask the credit bureaus to update your credit report to reflect your debt settlement. This will assist you in future when it comes to further credit applications and affordability assessments.
What are your other debt settlement options?
Should you not be able to settle your account just yet, but you are burdened by your debt, there are other ways to alleviate your debt stress.
Liaise with your creditor
Contact your creditor and try to negotiate a lower interest rate by explaining your financial situation. Often creditors are sensitive to this and will offer you a decreased rate, or even a discount on the total debt.
Debt counselling
This is a smart debt solution that allows overindebted consumers to pay off their debt more comfortably, and secure their assets, with the assistance of a registered debt counsellor.
Your counsellor will negotiate lower instalments and arrange an extended loan term with your creditors to help you free up some much-needed cash.