Do-It-Yourself Debt Consolidation

Debt consolidation is an art that even a non-creative person can do. You don’t have to be well-versed in anything, except a lot of common sense.

It’s tedious work, but when you’re done, you’ll be glad you did it yourself. You’ll save loads of money. You also may get to the end that satisfies the means more quickly than if you had hired a debt consolidation company to do it for you. The intentional end is that you will be debt free!

Video: Using the Debt Snowball to Pay Off Debt

First things first

Where to start? Your mission, should you choose to accept it, will be to form a strategic plan as to how you will attack your debt through a consolidation plan. You will find the tools here that you need to tackle this tactical task.

free debt consolidation letters

Below is a list of activities you will need to complete before contacting any of your creditors.

Obtain a free copy of your credit report from each of the three reporting agencies – Equifax, TransUnion and Experian.
Sort out each debt that needs to be addressed under the following headings:

Old accounts – accounts exceeding the statute of limitations.
Debts paid off – but creditors are still trying to collect.
Closed accounts – but still reflect open status.
Debt dispute – creditor claims that you owe more than you think you do.
Open accounts – but should be notated as closed.
Accounts closed by creditor – but should have been notated as being closed by you.

Identify all creditors you are receiving phone calls from. Their contact information should be noted under each of their accounts in your credit report.

Debt Consolidation Letters

Now that you’ve organized your debt, the next stage of your tactical plan is to write letters to the appropriate contacts. This will start the process to repair your credit and set you up to successfully consolidate your debt. Some letters will be sent to creditors. Others will be sent to third party collectors, or even directly to the credit reporting agencies. Make sure to do the following for every letter you send:

Date – Include the date at the top of the letter.
Addressee – Include the full name of the creditor, collection agency or collector in the addressee line.
Subject Line -- Note the account or specific dispute in the subject line – e.g., account number, creditor name, name of company inquiring. You may be receiving calls from a third party collector, so you’ll need to note the original creditor in the subject line if this applies.
Personal Info – Include your name and address in the body of the letter.
Credit Report – Include a copy of the page of your credit report with the disputed item circled or highlighted for clarification.
Originals – Keep your originals. Send copies only of all support documentation.
Certified Mail – Mail all letters certified mail, return receipt requested. You need documented proof that they were received by the intended recipient.

Below are credit repair letters you’ll want to compose to address inaccuracies on your credit report. Once corrections are made to your credit report, you’ll have an accurate basis on which to further negotiate with your creditors.

Credit Disputes. Credit reporting agencies are required by law to verify the validity of reported account information on your credit report if you request it. You can create a template for the three reporting agencies, although, the accounts you need to dispute may be different for each agency.

The credit reporting agencies may allow your changes to be submitted to them online. You may prefer to write a letter, instead. In that case, letters should be mailed certified mail, return receipt requested.
Make sure you notate any companies that denied you credit based on your credit report if applicable.
State that this was an embarrassment to you and defamed your credit.
Request the credit reporting agencies update the information. Also request they send corrected copies of your credit report to the companies who denied you credit based on the erroneous information in your credit report.

Remove Inquiries. Again, this would be directed to the credit reporting agencies, and involves inquiries noted on your report that you never approved. Credit reporting agencies are required by the Federal Trade Commission (FTC) to research this information upon receipt of a written request from you.

You may be able to submit these to the credit reporting agencies online. If you prefer to do it in writing, then send it certified mail return receipt requested.
Ask the credit reporting agency to remove the inquiry on the basis that you did not give permission for the inquiry.
Require them to send you proof if they find that you did authorize the inquiry to your credit report.

Valid Negative Info. Creditors are sometimes willing to work with you to erase negative notations they’ve made on your credit report when you’ve paid off the accounts.

Write a letter and describe in detail why you were late or slow to pay on the account.
Explain to them what you did to remedy the account and what enabled you to pay it off.
Ask them to remove the negative notation made on your credit report.
They may or may not comply, but it can never hurt to ask.

Video: Statute of Limitations on Credit Card Debt

Statute of Limitations. Creditors are required by law to stop all attempts to collect on debt that exceeds the statute of limitations for the debt.

There are specific timeframes in which collections may commence against you for certain debts – e.g., oral agreements, written contracts, promissory notes, open accounts (credit cards).
If a debt exceeds the statute of limitations, the debt is no longer valid or legally collectible.
Although, this can be tricky, you can go by the information reported on your credit report.
This letter will include the following:

Inform the creditor that this is an old debt. It exceeds the statute of limitations.
They must cease all attempts to contact you about or collect on this debt; otherwise, they will be violating federal and state laws.
Notify them that if they attempt any further collections that you will file a formal complaint with the FTC, and you will be forced to file suit against them.

Validate Debt – Creditors. Creditors are required by law to validate a debt upon receipt of your written request.

In your letter to the creditor, specify that you need them to explain or provide the following:
What exactly constitutes the total amount they say you owe – e.g., late fees, charges to your account, overdraft fees – have them specify everything.
How they calculated what they say you owe.
Copies of any documents that show you agreed to pay for what they said you owe.
Documentation of judgment, if it applies.
Name of original creditor.
Proof that the statute of limitations hasn’t expired on the account.
Copy of their license to collect in your state.
Their license numbers.
Inform them of the following:
If their office has reported inaccurate information to any of the three major credit bureaus that this activity may be considered fraudulent under both state and federal laws. With this in mind, if the company has noted any negative marks on any of your credit reports that you will not hesitate to bring legal action against them for violation of the Fair Credit Reporting Act, Fair Debt Collection Practices Act (FDCPA) and defamation of character.
You will need 30 days to research any information they provide and that they should cease and desist all collection activity for that period of time.
If their office does not validate the debt within 30 days of receiving your notification, then they are to delete all references to the account and provide you written confirmation of such.
That they are to cease all phone calls to you at your work and home, including auto-generated calls or calls from any third party collections. If they do not comply, it will be considered as harassment and you will have no choice but to sue them. Specify that all future communication from them be submitted to you only in writing and sent to the address you provide.

Settle your debt! Having completed all of the above, you are now ready to negotiate a debt settlement with your creditors. Regardless, you need to notify all creditors to stop calling you. Those harassing phone calls do nothing but create more stress.

Settle Debt. If you are three months or more behind on your payments, creditors will typically work with you to reduce your debt.

If you do not already have a budget in place, create one now. Inventory all your income and all your expenses for the month. Of course, you’ll want to leave out all debt you are going to consolidate. Allocate all but $100 a month of what is left over to pay for your debt. This will give you a cushion for the unexpected – e.g., potential overdrafts. Now you know what you can pay on your debts.
List out all your debts.
Calculate an equal percent of the amount owed on each that will total the amount you can pay each month – e.g., 40% or more on each account equals total amount you can pay.
Create a letter for each of your creditors and negotiate a reduced payoff of the account.
Make sure the creditor that you contact is the actual creditor noted on your credit report.
Note to the creditor that your intent is to negotiate a settlement of your debt.
If paying in one lump sum, you’re more likely to negotiate a lower payoff. Offer to pay 40% of the debt in a lump sum.
If paying monthly, still offer to pay 40% of the debt, but include an affordable payment; however, keep in mind all the other debts you will be paying on.
Specify in your letter a requirement that your creditor change the reporting in your credit report to reflect paying on time or paid in full (whichever applies) and removes all negative notations on your credit report. You do not want the account to reflect settled. This is the ideal. If you later find out they will not, require them to remove all account information from your credit reports.
Before paying anything, get it all in writing from your creditor.
Don’t give the creditor your place of work or bank information. If you are not able to work out an agreement, you don’t want the creditor harassing you at work or having easy access to garnishee your bank account.
Once agreed upon, your creditor will send you a contract with all applicable information. Make sure everything you agreed to is included before you sign.
Do not pay with a personal check. Pay with a cashier’s check or money order, and don’t get either from your own bank. You don’t want them to have access to your accounts. Although this is not valid in all states, make sure you notate on the memo line, “Account paid in full.” Don’t forget to include the account number and creditor. You may also want to write language on the back of the payment that indicates, “By cashing this note, the payee agrees this account is paid in full.” You can use your own version if you like. Just make sure it specifies that the balance of your account with this creditor is paid in full if the check is cashed.

Stop Calls. The FTC requires creditors to stop all calls to you if you notify the creditor in writing. You can create one template to address all creditors that you want to stop calling. You’ll need to remember to change the name of the addressee and account information in the subject line for each creditor.

Create language that specifically states that you want the creditor to stop all phone calls to you, whether it is at your work, home, your neighbors or relatives. Emphatically direct them to stop all phone calls, and inform them that, according to the FDCPA, they must comply.

There are several more letters you may want to consider writing, including judgment proof, close credit card accounts, reduced payment agreement to creditors, post debt settlement, debt payment agreement, follow-up debt dispute, and others. If you do a search on the web, you’ll find more sample letters than you care to write.

debt freedom

It can be stressful negotiating a debt consolidation, but if you are careful to hold your creditors’ feet to the fire in regards to the FTC rules, you’ll come out ahead, and be glad you did it.

Send this page to a friend ...