Credit Card Debt Settlement, sometimes called a debt workout plan, can be a great solution if you are overwhelmed by credit card debt.
Many people think they need to hire one of the many credit card debt settlement companies out there. These companies advertise credit card debt settlement services heavily and sometimes call themselves debt reduction , debt management, debt workout, debt relief or debt settlement firms.
While hiring an outside firm is certainly one option, you can initiate credit card debt settlement negotiation on your own.
One thing to keep in mind is that credit card companies will only settle if they believe that it is in their best interests. This means that if you lack assets that they can go after they are much more likely to work with you. If you are a legitimate candidate for a Chapter 7 Bankruptcy, they will likely be much more willing to write off a large portion of your debt than if your stable relatively high income will require you to file a Chapter 13.
How will they determine this? They will look at how you have been managing your account and they will also look at your credit report. If you are behind on all of your bills, that is a good indication that you are headed for trouble. On the other hand, if you have a fairly average credit score they may be less likely to deal. Some lenders will also require a complete financial statement so they can get a complete picture of your financial hardship.
If you decide to contact a credit card company for a debt negotiation settlement, you need to first come up with some numbers. What can you afford to pay them? Most creditors will require a lump sum, but some may agree to a short term monthly payment over a three to six month period.
If the creditor has previously sent you a written offer of settlement, you will want to have this handy. Tell them that you received their offer and would love to settle, but right now you can only afford X (some lesser amount.) You may be able to save a great deal of money just by negotiating their figure down.
Just remember – collectors aren’t your friends! (Even if you do get the rare one who is actually polite.) Don’t get rattled if they try to intimidate you or make you feel bad. Their only job is to get as much cash out of you as they can. Let them know you are prepared to make a payment today…but only if you get a settlement. Be polite and professional. Never make threats, never use profane language, and never yell. It just won’t get you anywhere.
If the person you initially speak with says they can’t offer a settlement, ask to speak with the collections supervisor. Keep in mind that many collectors are paid little more than minimum wage and they truly may not have the authority to write off thousands of dollars.
How much you can settle for largely depends on the internal policy of each company. If you don’t have any idea what you should be asking for, a good rule of thumb is to ask for all late fees, over the limit charges and interest charges to be taken from the account. This should remove between 30-45% of your balance. If the creditor isn’t willing to do this, then a settlement isn’t to your advantage. Chances are, over time they will come to their sense. After all, something is better than nothing.
If you are attempting credit card debt settlement on you own, be sure to keep detailed records. You want the date and time you called, who you spoke with and a log of the conversation. Remember, most calls are recorded but if you don’t have this information and there is a dispute later, supervisors may not be able to determine what was actually promised.
Prior to making payment, you want to make sure that you get a letter from the creditor stating that the account will be paid in full under the agreed upon terms. Too often, and unscrupulous outside collection companies will verbally say that they are settling an account for a specific amount. The client makes the payment, thinking they have heard the last of it. Then, a few months later, another collection company attempts to collect the remaining balance that the consumer thought had been settled. Unless you have something in writing, in most cases there is little that you can do.
As always, when dealing with credit, the best thing you can do is know the law! Companies are banking on you being ignorant – don’t fall into their trap!
By the way, if you have credit card debt but don’t think your situation is bad enough to consider debt settlement, why not consider debt consolidation? Or, you can work with a Christian debt reduction firm.
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