How Do I Settle My Credit Card Debts?
So, you've decided that debt settlement is right for you. Either you've already fallen behind on your revolving debt payments or you expect to and see settlement as a viable option. What do you do next to get relief from your debt?
You essentially have two options at this point. You can attempt to call each creditor yourself or you can go through a company that specializes in debt settlement. If you are going to negotiate settlements yourself be sure you are educated. Use our glossaries to familiarize yourself on terms and definitions that you will hear when speaking to credit card companies about settling your debt for less than the full amount.
Many companies will negotiate debts to a reduced amount up to 50% or more of the the original balance. The key here is to make sure you are clear about your situation, where you were financially, where you are financially, and where you are trying to get in terms of your finances. As when trying to sell anything, you want to paint a picture for the creditor that settling for you for a reduced amount is in their best interest. Be upfront about what you can afford to pay in a lump sum or try to negotiate a reduced balance with set monthly payments.
Get Your Settlement Agreement in Writing
You've probably heard the old cliche about 'getting it in writing'. This couldn't be more true than with debt settlements.
If you are negotiating settlement yourself ensure that before you make a payment or hand over any bank account or credit or debit card infromation that you have a written and signed letter from the creditor outlining the terms of the agreement. This is true if it is a lump sum settlement or an agreement for a reduced sum with monthly payments. Some creditors have been known to enter into an oral agreement and then withdraw the full debt amount from consumers' credit or savings accounts. This is unethical and at times illegal however you can be unprotected if you do not have a letter from the creditor explicitly outlining the terms of the debt settlement.
If you decide to use a debt settlement company they will more than likely take an upfront fee and then possibly a percentage of your monthly payment or a flat charge per month. Keep in mind that these companies hold on to your money often for a period of several months. This could easily be thousands of dollars. If you do not have an agreement in writing and the company does not fulfill what you feel are their obligations, you could be left still owing the original balance on the cards and out the thousands of dollars you 've paid the settlement firm.
When researching debt settlement firms keep the following guidelines in mind:
- Make sure the company has been accredited by The Association of Settlement Companies (TASC)
- Ask if they have certified debt arbitrators. If not this should be a red flag.
- Talk to at least three companies and get fee quotes.
- Ensure that you are guaranteed results.
- Ask for a full disclosure of what is and is not included in the agreement. Make sure fees are specifically outlined.
- Request verification of membership in the Better Business Bureau and/or the local Chamber of Commerce
- Ask for proof that the company is licensed and bonded in your state if your state requires it.
Get Rid of the Credit Cards with the Lowest Balances First
If you are considering debt settlement, stop and take a hard look at your debts. If you have several credit cards with relatively low balances that you can realistically pay off in a year, do not settle those accounts pay them off. Each account you settle will go into a default status of, more than likely, 90 days prior to the credit card company accepting a settlement on the account. Going 90 days late on any account should be avoided if possible. Having one or two 90 day late accounts is much better than having 10 accounts that are 90 day lates.
Resolve any account you can for the full amount before going to a debt settlement compan or negotiating for lower balances with credit card companies.
Be a Proactive Negotiator
Often consumers will call their credit card lenders and say something along the lines of "I can't afford my payments, what can you guys do for me." This is a poor negotiating tactic. You have to be a proactive negotiator if you don't want to go through a debt settlement company.
Before you call be sure you have reviewed your current financial affairs. Know what your monthly net income is for your household and what your monthly expenses are. When you are determining your monthly expenses be sure to include things like groceries, clothes, haircuts, and other small items that can add up in a monthly budget.
Once you have made these determinations about your budget, start calling you creditors. However, when you do, tell them upfront about your situation, where you are, and what you can do. Being able to clearly communicate that you understand the circumstances and where you are is very helpful in getting creditors to take your offer seriously.
Can Do Versus Can't Do
Lastly, when calling to negotiate a settlement implement one of the cardinal rules of negotiation. Talk about positives and not negatives. In the instance of debt settlement negotiations, talk about what you are able to do, not about the fact that you are unable to fulfill the original terms of your agreement. For example, tell the creditor or collection agency that you would like to be able to meet the original terms of your credit card agreement however that your current situation was unexpected. Because of this you are able to pay 50% of the debt obligation right now if they are willing to settle the debt. You may have noticed the 'right now' part of the last sentence. When calling to negotiate debts with credit card lenders be prepared to make payment soon. Most collection agencies and credit card companies won't settle an account if you tell them you can't pay for three months, you are already late so they have little reason to believe you and feel they are just extending their risk.
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State Guides to Credit Card Laws
- North Carolina
- West Virginia