In some circumstances, you may be able to "settle" your debts for less than what is owed. In some cases, debtors can negotiate settlements for 50%-70% on the dollar. The likelihood of negotiating a settlement is dependent on the type of debt, the repayment record on the debt, and individual circumstances surrounding a consumer. Settling debt is usually only possible if the debt is unsecured debt (debt that does not involve collateral.) Some examples of unsecured debts that may be settled upon are credit cards, medical bills, personal loans, and balances that debtors are legally liable for after foreclosure or repossession. Creditors have no reason to engage in settlement negotiations on secured debt because they can repossess the property that is backing the loan and resell it to recoup the money that was loaned. In rare cases, secured automobile loans may be settled upon if the car backing the loan has lost most of its value and is not worth repossessing. Generally speaking, creditors will not settle on debt on which you are current. However, on unsecured debt, creditors are willing to settle as a way of minimizing the loss that they expect to have to incur on debt that is difficult to collect upon. If an account is current, the creditor has no reason to believe that they have to take a loss, because it appears the debtor can still afford to pay their bills. On rare occasions, creditors may be willing to settle debt that is current. One example would be a situation in which a debtor becomes sick or injured and unable to work to pay on their debt. In circumstances like these, the creditor would probably require that the debtor substantiate the reason for the settlement by asking for documentation to support the unusual circumstances.

Settling debt is like playing poker. If the creditors are entertaining the thought of agreeing to a settlement on your debt, it is a good indicator that you hold the upper hand. Once you know they will settle, make sure you get the lowest possible settlement terms. Following are guidelines to follow when attempting to settle a debt:

• Go into negotiations with a game plan
• Bid low to start
• Don't let the creditors control the situation
• Let the creditor know that they are one of many and there are other options
• Substantiate your reasons for needing to settle
• Keep good records and follow up
• Try to make the settlement as "credit report friendly" as possible
• Get all arrangements in writing