Can I Do Debt Relief Myself?

You may be wondering, “Can I do debt relief myself?”

The answer is: it depends, so let’s take a look. Debt settlement is an option if your payments are at least 90 days late, but it’s more feasible when you’re five or more months behind. But because you must continue to miss payments while negotiating, damage to your credit stacks up, and there is no guarantee that you’ll end up with a deal.

Here’s how to DIY debt settlement compares to using a debt settlement company and how to negotiate with a creditor on your own.

If you’re considering debt settlement, you probably feel like you’re in over your head. And you may be wondering if you can do it yourself or if you need to hire a company.

When You Can Settle Debt Yourself

If you’re only a few months behind on your payments, you might be able to negotiate with your creditors yourself and avoid the fees charged by debt settlement companies. You can also try to settle debt yourself if you have the money to pay a large sum but not the full balance.

But keep in mind that negotiating on your own is not for everyone. If you’re struggling to make even minimum payments, or if you’ve already been sued by a creditor, you might need professional help.

How Debt Settlement Companies Work

Debt settlement companies typically charge 15% of the amount you owe – which means they keep 15% of any savings they get for you. So, if a debt settlement company settles a $10,000 debt for $5,000, you would still owe the creditor $5,000. The company would keep $750 as its fee (15% of $5,000).

In most cases, you’ll also have to pay taxes on the forgiven debt if the amount is more than $600. So, in the example above, you’d probably owe Uncle Sam another $1,500 ($2,250 forgiven debt minus the $750 fee equals $1,500).

Some companies try to lure customers in with promises of “no upfront fees.” But that usually means they’ll instead tack on hidden fees later or raise their percentage fee to make up for not charging upfront. Be sure to read the fine print before signing up with any debt settlement company.

When Debt Settlement Is a Bad Idea

Settling your debts should be a last resort. That’s because it will damage your credit score and stay on your credit report for up to seven years. And there’s no guarantee that your creditors will agree to settle.

What about Debt Management?

There are a few other options to consider before debt settlement. One is called debt management or relief, which can involve working with a credit counseling agency to create a repayment plan or enrolling in a debt management program. Freedom Debt Relief has a great credit card debt relief program.

With debt management, your monthly payments may be lowered, but you’ll still be required to pay off your debts in full – and it will take longer. Debt management will also ding your credit score, although not as much as debt settlement.

Another option is to consolidate your debts with a personal loan or balance transfer credit card. This can help you get lower interest rates and monthly payments, but you’ll still need to pay off your debts in full. And if you’re using a balance transfer credit card, you’ll need to be disciplined enough to pay it off before the intro period ends and the higher interest rate kicks in.

The Bottom Line

So, your question was “Can I do debt relief myself?” Before you decide to settle your debts on your own or with the help of a company, explore all of your options – including debt management. If you’re not sure what to do, talk to a credit counselor. They can help you create a plan to get out of debt that’s best for your unique situation.