Part One: Preparation
Offering settlements to your creditors maybe one of the best ways of clearing your debts and saving yourself some money in the process. If you have some savings or access to a lump sum of cash then you may wish to consider this as an option to becoming debt free. In order to proceed you will need the following items:
Up to date balances of your debts (you cannot offer short settlements on secured debts).
A pen and paper.
A calculator.
A lump sum of money (typically more than 50% of what you owe in total).
The first thing you need to do is compare your lump sum to the total amount you owe. Anything over 50% is a good place to start if you are intending to try and clear all your debts. Anything lower than 50% and you may struggle to clear your debts entirely but might be able to save yourself some money all the same!
For the purposes of this exercise I owe $60,000 and have $39,600 to offer creditors. My debts are as follows:
Loan 1: 10,000
Loan 2: 15,000
Loan 3: 10,000
Credit Card 1: 5,000
Credit Card 2: 7,000
Credit Card 3: 9,000
Credit Card 4: 4,000
Initially, I am going to offer my creditors a pro rata payment. This means they will be offered a sum that is comparatively the same. It is important to be fair when offering creditors a payment offer as quite rightly they will expect to be treated fairly (this will become more apparent in Part 2 of this post).
For the above debts my pro rata offers will look like this.
Debt Amount Owed Pro Rate Offer (66% of debt)
Loan 1: 10,000 6,600
Loan 2: 15,000 9,900
Loan 3: 10,000 6,600
Credit Card 1: 5,000 3,300
Credit Card 2: 7,000 4,620
Credit Card 3: 9,000 5,940
Credit Card 4: 4,000 2,640
Total £60,000 £39,600
Now you have your offers you will need to send them to your creditors. In next weeks post I will explain how to this is done as well as include a letter template to send to your creditors.
For more information in the interim please proceed to www.ausdebtsolutions.net or leave a comment below.
