January 18, 2012 13:34 ET

8 Good Rules of Thumb for Debt Settlement

PHOENIX, AZ--(Marketwire - Jan 18, 2012) - Making the decision to start the debt settlement process is a big one, so make sure you go into it prepared. "The last thing you want to do," says's Kristy Welsh, "is get the ball rolling only to discover it's moving in the wrong direction."

1. Put everything in writing. Avoid phone calls with collection agencies altogether. Not only can the reps be bullies (and who needs that stress?), but phone conversations don't carry the same weight as a written debt settlement agreement.

2. Send it registered mail. This is the only means you have of proving that the collection agency received your communication.

3. Keep your cool. Never communicate a sense of desperation or urgency to settle your debt. The more you imply you're willing to take your time, the better.

4. Offer to settle for no more than 25 percent of the debt. Most collection agencies only get pennies on the dollar for the debts on their books. Getting 25 percent of the debt from you still makes them a tidy profit.

5. Ask for the negative listing to be removed from your credit report. Once your debt is paid in full, there is nothing to stop a collection agency from removing the negative listing from your report. You have to ask. Get it in writing.

6. Get terms in writing before making a payment. If you have negotiated a deal with a collection agency, make sure you have a letter outlining the agreed-to terms.

7. Pay in one lump sum. Collection agencies may try to talk you into making payments on your debt. They will not only charge you interest, but it may also restart the statute of limitations. Save up and only start the debt settlement process once you have a lump sum!

8. Keep good records. Record every communication you have with the collection agency, including dates and types of correspondence. was founded in 1997 as a one-stop destination for consumers looking for free advice on repairing credit and rebuilding good credit. Creditinfocenter Founder Kristy Welsh is the author of several books on personal finance, including Good Credit Is Sexy, a tongue-in-cheek guide to managing credit.

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    Kathleen Richards