Guiding consumers since 2009

Do you want to settle your debt?

By Danielle van Wyk

You may be considering settling your credit account, whether it’s a credit card or various store accounts, now may be as good a time as any. This especially if you have saved, or you received a tax return or salary bonus.

If this sounds like you, then Justmoney has advice on how you can navigate the debt settlement process.

Tip: For trusted help to pay off your debt sooner, click here.

What is debt settlement?

Simply put, debt settlement is where you agree to pay off or settle your outstanding debt in one settlement amount. This often means negotiating with your creditor on an amount that you’ll then need to pay. This amount is typically calculated as a percentage of the full outstanding amount. Depending on your payment history, creditors may offer a discount on this amount as well.

While this process may sound straightforward, the negotiation can get complicated.

Here are a few tips on how to approach settling your debt:

1. Total your debt: In order to understand how much it is that you owe and will have 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 are able to settle.

2. Negotiate carefully: Once you inform your creditors that you want to settle your account, they typically work out a settlement amount for you. This amount is usually presented as a percentage of the total balance and often also boasts a discount. Creditors will usually push that the agreed-upon amount is settled within 48 hours after which the offer will no longer stand. This puts added pressure on the consumer to pay up.

For this reason, it’s vital you negotiate an amount you are comfortable with.

It’s a good idea to get the offer in writing. Once the creditor has agreed to the amount, request that it is 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.

3. Request a paid-up letter: Once you have settled your debt, ensure the creditor sends you a paid-up letter via email or post. This will be your receipt and proof of settlement and is important to have, should the creditor at any point dispute the settlement.

While this is mandatory for the creditor to send, it is wise to follow up.

4. Request an ITC update: Often when you have debt you may have slipped up on payments along the way which means your credit score will be negatively affected. If this is the case, it's vital you request your creditor send an ITC review request where the credit bureaus are alerted to the fact that you have settled. This will assist you in future when it comes to further credit applications and affordability assessments.

What are your other 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.

Here are a few:

Liaise with your creditor: Contact your creditor and try to negotiate a lower and better interest rate by explaining your financial situation. Often creditors are sensitive to this and will offer you a lessened interest rate or even a discount on the total debt.

Debt counselling: This is a smart debt solution that offers overindebted consumers the care of a trusted debt counsellor through a process that is meant to assist them to systematically and comfortably pay off their debt.

Your counsellor will lower instalments and arrange an extended term with your creditors to help you free up some much-needed cash.

For more information on the debt counselling process, click here.

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