Making a Debt Settlement Savings Plan

A Debt Settlement Savings Plan is an important tool when it comes to the actual process of settling your debts. Not only will it help you initially weigh your options to see if debt settlement is doable for your situation, but it also will help you avoid unnecessary trouble down the road with not having enough funds. It also has the added benefit of acting as your personal roadmap, as it can take 1-4 years (on average) for most people to settle their debts.

Step 1: Gathering Your Statements

Naturally, the first step is to gather the credit card/personal loan statements for the unsecured debts you are trying to resolve. Remember, debt settlement primarily works for credit card & personal loan debt, so anything with property/collateral is not possible.

Once you have gathered the relevant statements, create a list of the creditors, the amounts owed, and the minimum monthly payments. This information will be used in the next step.

Step 2: Check the List of Compatible Creditors

Knowing whether or not your creditors are open to settling the debts is the next step. Most creditors are generally open to settling debts because: A) They’ve likely already made their money back in the interest you’ve been paying. B) If you’re going through a financial hardship, they’d rather have some money than none.

However, there are a few creditors that do not settle their debts, and they are usually Federal Credit Unions or creditors that have secured the debt in some way that you may not be aware of – for example, contractors may purchase necessary tools by getting a loan that uses the tools themselves as collateral.

That being said, the list of creditors that are not willing to settle debts is relatively short compared to the list of creditors that do settle.

Step 3: Estimated Settlements & Timeline

Estimating how much you’re likely to pay and how long it’ll take to settle every account has always been a stumbling block for many, when it comes to settling their own debts. Walking into the unknown can be very intimidating.

Luckily, we’ve assembled a list of average settlement amounts and the timelines based on the major creditors/banks in the industry:

Creditor Settlement Estimates & Timeframes

Even without this list, it is possible to use rough estimates to still be successful. The list itself is intended to only give consumers a better idea of what their creditors’ policies are, since creditors do their best to keep us in the dark.

Step 4: Estimating Savings Needed

Estimating how much money you’ll need is the final step to creating your Debt Settlement Savings Plan. Remember, the accounts you’re looking to settle must fall past-due and therefore be closed. So although you’ll be saving money on a monthly basis, compared to the high payments/interest you’d be paying your creditors, you must still account for the fact that you will not have the cards themselves available for use any further.

This is a ‘double-edged sword,’ since many people are stuck in the Treadmill Effect and still use their credit cards on a daily basis. The key to this problem is to save enough money to settle the debts based on the estimates from Step 3, but also have enough to save for your own personal emergency fund. The goal with all of this is to help you regain your financial independence, which means regaining control over your cashflow and allowing your credit to be cleansed by getting rid of the debt.