Being in debt isn’t great.

Being unable to pay your debt is even worse.

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To put it simply, life happens.

You take out a car loan and the economy crashes and you lose your job.

You buy a house, but then a family member gets cancer and the bills are too much.

It happens to everyone.

Before we get started, let’s address a couple things.

First, settling your debt for less than you owe is generallybad for your credit score.

Naturally, creditors are unlikely to want to lend you more money based on that.

The other thing to consider is the relative moral grey area debt settlement exists in.

Some money is better than no money, after all.

At that point, you won’t deal with the creditor anymore.

You’ll deal with the collections agency.

This is important to keep in mind.

Youdotechnically owe the entirety of your balance.

A debtor that settles is better than one who defaults entirely.

This gives you some room to negotiate.

Not a ton, but some.

This process won’t start until you haven’t been paying your bills for about 90 days.

However, it does send the message to your creditor that you’re either unable or unwilling to pay.

Itemize your bills, categorize them by necessity, by optional expenses, and what you have left over.

You’ll need to identify exactly what you’re capable of paying back and stick to it.

In a way, this negotiation is a bit easier because your limits are built into your budget.

Lest you end up in the same situation.

Your creditor will likely send you letters and/or call you to discuss your situation.

At this point, you’ve got the option to negotiate what you’re able to pay.

Initially, they will want the entire amount due.

This is the time to ask to negotiate.

Be up front with the fact that you are unable to pay the entirety.

It may be a devastating call for you, but it’s fairly routine for them.

You might negotiate to pay back half of that.

That may be payable in a lump sum, or over time.

Your monthly payment:In addition, you’re free to also negotiate a lower monthly payment.

This isn’t the place to get ambitious.

Your account’s standing:This is the part that affects your credit score.

Your account can be in various states that negatively affect your credit.

Depending on your situation, the deals you’re free to work out vary.

you might read more about these various forms of planshere, as they all have their advantages and disadvantages.

You shouldn’t bother calling your credit card company at this stage.

They won’t talk to you anyway.

So, say you had $10,000 in credit card debt.

Your creditor may have sold it for $1,000.

There is a downside to this avenue, though.

Since your debt is no longer with your original creditor, there’sa bit less accountability.

While it may not be legal for a collections agency to lie or manipulate you, it can happen.

Or it could be that your credit agency is choosing to be vague.

Either way, you’ll want something specificin writingto what debt you’re paying off.

The name of the original creditor and account numbers should be accessible to the collection agency.

Again, be specific.

A debt for “Medical bills” is not specific.

A debt for “Visit to Dr. Realname on October 12th, 2013” is specific.

When your payment is due:Some settlement offers will have a set deadline.

Others will require you pay them “within 30 days.”

Be sure to get a copy of the deadlinein writingto ensure you have proof you paid on time.

Be sure that you acknowledgein writingwho you are paying along with what accounts you’re paying for.

And, once more for posterity, be sure to get everything in writing.

Not only the terms of your deal, but anything you’re able to.

If it’slegal to record phone calls in your area, it couldn’t hurt to do that either.

Naturally, this hurts your credit score even more, which puts pressure on you to pay up.

This isn’t the jot down of situation you want to get yourself in on purpose.

Photos byBryan Brenneman,TheTruthAbout, andKeith Williamson.