Almost all consumers who encounter a financial setback take help of debt settlement to recover as soon as possible. Debt settlement is a process in which all debtors can reduce their debt amount considerably, almost to its half. Most experts are of the opinion that debt settlement is a debt relief option that should be considered if you have got negative results from the other options. Consumers should be well informed before resorting to debt settlement companies.

A consumer can be neck deep in debt where he owes the debt to a creditor and if he has been too much delinquent on his accounts, his accounts may be turned down to the collection agency. Now the question lies as to how would you settle your debts if you owe them to a collection agency. Read on to know about it.

1. Contact the collection agency: The first step to settling your debts that are owed to a collection agency is that you are required to contact them. As you feel that you’re ready for a settlement, write a letter to them informing them of a settlement.
2. Ask for a debt validation letter: With a debt validation letter you can verify whether or not you actually owe the money to that collection agency. Reply only if you get the proof that the particular collection agency has been given the duty to collect the debt on the creditor’s behalf. If you do not find the reply of the collection agency to be satisfactory, you may inform the collection agency that it is violating the FDCPA and you can even sue them.
3. Offer a lump sum: As you’re done with the inquiry, offer a lump sum amount to the creditor so that he remains satisfied with the money. On this depends the way he will report this payment to the credit bureaus. If he reports it as “paid in full”, you will not hurt your credit score to that extent. But if he reports as “paid as settled”, you may tremendously hurt your credit score. Negotiate with your creditor in order to protect your credit score from being hit.

Financial experts are very prompt in informing consumers that the biggest disadvantage of debt settlement is the damage that it causes to your credit score. After the new FTC rules, all companies are required to disclose the pros and cons of settling their debts through a debt settlement company. Thus, if you’re looking for settling your debts that you owe to a collection agency, take into account the above mentioned steps to get a better result.