If you have unpaid bills you may believe that your only option is bankruptcy. Bankruptcy is a painful experience that you want to avoid. Fortunately there are many things to do to avoid it. One way is to settle credit card debt for less than the amount owed.
Before we get into how to settle credit card debt, let me put your mind at ease a bit. Yes, you are at risk when you have unpaid collections. It is possible that the creditor will sue you and get a judgment against them that allows them to garnish your wages. The reality is that the expense that it takes them to do this is enormous, so the chances of them going this far are not that great.
If you have a creditor threatening to sue you, you should not rush into bankruptcy because you are scared. What no one tells you is that lawsuits take time. The best thing you can do is keep your head clear and attempt to settle your debts.
Before you attempt to do this, you should do some research on the statute of limitations for debts in your state. The statute of limitations is the amount of time that a creditor can use the court systems to collect on a debt. It varies by state and is usually between three and ten years. If the statute of limitations has passed, there is nothing the creditor can do to you and your debt is noncollectable.
If the statute of limitations is up, you might want to consider debt validation. It is a great way to fix bad credit!
If you have already tried this and it did not work for you, it may be time to consider settling credit card debt before the creditor has the chance to sue you. It is important to note that debt settlement will hurt your credit, so it isn’t a strategy for those who would just prefer not to have to pay their bills. It should be considered only if it is a way to try to avoid bankruptcy.
Secured debts are not typically candidates for debt settlement because the creditors can simply go after the underlying asset that collateralized the loan. Debt settlement works best for medical bills, personal loans, bounced checked and credit cards.
Once you approach your creditor to settle a credit card debt or any other debt, they will do a risk analysis to determine their course of action. What you want to do is provide them with all the information they need to make a decision in your favor.
Keep in mind, these companies are in the business to maximize their profits. They will look at the overall situation and determine if settling with you is in their best interest. They do not want to sue you, but if they believe that suing you will enable them to collect more money, they may choose this route. Likewise, if they believe that they would collect more if you did go ahead and file bankruptcy, they may refuse to settle in homes of pushing you in that direction.
Let’s face it; the credit card companies never WANT to settle. What they want is to collect the entire balance. That being said, they are in the business of mitigating risk and if they believe that they may possibly get nothing, they may decide that they are willing to accept less than the full balance.
The key to your success is to convince your creditor that you are facing bankruptcy. They will determine if this is a possibility in several ways. The first is by looking at your payment history with them. They will also pull a copy of your credit report and see how you are managing your other accounts. If you are just late on this account and are paying everything else perfectly, they are not likely to settle your account because it does not appear that you are truly in financial distress.
Once they see how you are managing your current accounts, they will look at your income and assets. The company may ask for verification of your income and assets when you are going through the debt settlement process. If you don’t have enough income for Chapter 13, they will be more likely to settle. Likewise, if you do not have any assets that they could potentially go after or that might get distributed in a Chapter 7, they will likely determine that a settlement is in their best interest.
Many people wonder if you can settle credit card debt on your own. Yes! But there are several key things to remember.
It is best to do most of your communicating via certified mail. The phone is fine to try to get a read on their position, and to get information like their address or fax number. Beyond that, it is best to do everything in writing so that you have good records.
When starting to make an offer, it is best to offer around 25% of the account balance. So, if the balance is $20,000, you make your initial offer at $5,000. Creditors typically settle credit card debts for somewhere between 30% and 70% of the account balance.
Don’t expect things to settle credit card debt overnight. It may take as long as 9 months for an agreement to be reached.
Once you do reach a settlement, you want to make sure that you have this agreement in writing BEFORE you make a payment. Companies are not likely going to give you the agreement in writing after they have what they want nor or they likely to honor a verbal agreement.
You should also not be too anxious to settle the debt. Whatever you do, don’t let it slip that you are trying to settle the debt so that you can buy a home or new car! If you can afford to do that, the creditors will determine that you can afford to pay your balance in full and will not be likely to work with you. Remember, the more time that passes, the more likely that you will get a good settlement.
By the way, debt settlement can work for all types of debt. If you have a business that is facing tough times, you may be interested in getting information on commercial debt negotiation.
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