Debt Reduction Plan
A Debt Reduction is the process in which our firm will contact and negotiate with your creditors to achieve a reduction in the total amount of debt you owe.
The first step in the process is to analyze and understand your financial budget and hardship (the reason your debt has become difficult to pay). This step is the most crucial step because our firm needs to understand how much income you have left over, if any, after you pay your essential bills each month. Further, with this data, we can make an educated guess as to the likelihood of a settlement with your creditor(s).
For the second step, our firm will notify your creditors that you have hired us and any communications with you must stop. We will communicate with your creditor(s) and make attempt(s) to reduce each amount of debt you owe.
For example, you owe a credit card company $10,000 and you are currently 6 months behind because you had a reduction in income due to an unexpected expense, medical emergency, or etc. Our firm will contact your creditor, discuss your financial hardship(s), and submit a settlement offer. After months of back and forth negotiations, your creditor finally agrees to a settlement of $5,000. We even get them to agree to accept $500 a month for 10 months and then you are completely debt free. We then contact you for your approval and get the settlement offer in writing for your review. Once a debt has been negotiated and the full settlement amount has been paid to the creditor, the debt is then considered paid in full. In this example, you originally owed $10,000 and your creditor agreed to settle for $5,000.
This means you saved $5,000 in principal on the total amount of debt you owed, which is 50% in savings plus tens of thousands in interest had you kept making your minimum payments.
Debt Reduction Plans are typically used to negotiate credit card debt, unsecured personal loans, medical bills, collections, unsecured lines of credit and balances still owed on repossessed property.
A Debt Reduction Plan is NOT bankruptcy; it is an alternative to bankruptcy.
Here is an example of a debt reduction or settlement letter below.