Debt negotiations: The leverage of the lump sum.

February 28, 2019
debt negotiations and settlements

The Leverage of a Lump Sum

At Roundleaf Inc., we’re in the business of negotiating and setting debt for our clients, among other services that make sure they’re on a better financial path. And while we’re the industry leader in safe and effective debt negotiations, we also like to take the time to educate our clients, audience, and the general public as much as possible.


Today, I wanted to talk about one of the very important – but often overlooked – nuances of effective debt settlements: negotiating with a lump sum.


Sure, we might be able to negotiate with your lender for a settlement that allows you to pay only 30 percent, 50 percent, or 70 percent of the debt you now owe, but that comes with one big caveat: your credit card company will want that money NOW (or soon).

The Process

When our representatives get on the phone with the bank’s collections specialists, we know that they have certain parameters to follow. In order to be authorized to approve a debt settlement that offers considerable savings to the consumer/borrower, they will:


1. Only entertain offers and consider a settlement if the account is in recovery, i.e., payments are late.


2. Will look for a sizable influx of cash from the borrower immediately.


Therefore, a settlement is not a payment plan to your credit card company or lender (that’s what your original monthly payments were for, which you may have already defaulted on!)


Instead, the possibility of you making an immediate and significant payment offers extra motivation to your bank or lender to take far less than what’s owed. They’ll receive an influx of cash and can close the account, dedicating no more employee hours to it or worry about selling it off to a collections company, which will further erode the amount they may recover, if at all.


Think about it like this – if a friend owed you money but stopped paying and didn’t return your calls, but then came to you and presented to offers to finish the matter, which one would you take:


1. 80% of the amount they originally owed you, BUT that would be paid off a little bit every week (after they already missed payments to you and stopped returning your calls once before)? Or…


2. 50% of the amount they originally owed you, but they would come hand it to you in cash right now.


Chances are you might go for #2, and if you were a huge billion-dollar credit card company or financial institution (so it’s just business, not personal), you most likely would opt for the “sure thing” of money paid immediately and in a large chunk.

Debt Settlement = Lump Sum

So, we’ve established consumers who attempt a settlement need some sort of lump sum payment (the lenders may be liberal and allow you to break it into two or even three large payments starting that day but rarely more).


“But wait,” you may be thinking, “If I had that big chunk of change sitting around already, I probably would just keep making my minimum payments and wouldn’t be in trouble with debt or need a settlement!”


Fair point, so let me address that.


There are several ways to come up with the amount needed to settle:


-Accrue savings monthly by putting money aside in our program to use for a settlement when it’s achieved.


-Some of our clients already have a significant portion – or all – of the money already and just want us to negotiate their credit cards, auto loans, business or medical debt.


-Come up with the cash necessary by any other resourceful method, including selling something (like a boat, car, timeshare, etc.), borrow from a friend or family member, use your tax refund, an inheritance, access from an investment, borrow from a 401k or HELOC, etc.

During the Program

Most of our clients are not paying their credit cards anymore when they’re accepted into our debt settlement program. We NEVER advise that someone missed payments on purpose or tell anyone to stop paying, but the financial reality is that most people who come to us are so overburdened with debt that they can barely (if at all) keep up with the monthly payments and have absolutely no plan how they’ll effectively pay it off.


So, faced with the slippery slope towards complete financial collapse and possible bankruptcy (at which time the lender usually gets nothing!), they consider settlement a win-win – and it’s our job to convince the lender of that, too.


Think of it another way: if you were paying on-time and in-full every month, why would your credit card company or lender change that? What motivation would they have to offer a settlement at all?


We’ll get into the nuances and risks of missing payments in a future blog, but suffice to say that most of our clients have stopped paying their credit cards or interest on their debt. Instead, they accrue as much money as they can every month, whether it be held safely in escrow, by an attorney, or in their own bank, during the entire settlement process.


During that time, they are saving up funds on the side, we are diligently negotiating with their lender and at the point where there are enough funds available and the lender gives their sign-off, we can simply send over the required amount to consummate the settlement. (Of course, we also get the settlement terms in writing and make sure they are legally binding and won’t disperse the funds otherwise.)

How long will that take?

Well, we don’t know for sure, and no one can accurately predict or promise what settlement amount can be achieved – or if your bank will settle at all. But we do have our own set of parameters based on past experience settling hundreds of client’s debts, and we can map out a hypothetical timeline for you (based on conservative debt settlement estimates) when we decide to take on your case – sort of like a financial planner will provide a prospectus but can’t guarantee those numbers.

In short, we want to make sure our clients get in and out of the program as quickly, efficiently, and with as much savings as possible.

In Summary

Debt settlement is definitely not for everyone, but for a certain set of consumers who are burdened by $20,000, $40,000, or even $75,000 in credit card or other revolving debt and are just barely keeping up with the minimum payments – but don’t want to (or can’t) file bankruptcy, a debt settlement negotiated by Roundleaf Inc. may be the best financial decision.


If you’d like to check to see if you qualify to enter into our debt settlement program and what potential savings may be in store for you, please email us  or call (408) 912.2323.