Credit Card Settlements

Too many consumers feel that their credit card debts are so overwhelming that they feel the need to file for bankruptcy.   However, the fact is that many debts, credit cards included, are good candidates for settlement.  Consumers should arm themselves with information and use bankruptcy as a last resort.  Although there are many companies that can help you settle your debt for a fee, the process is simple enough for a consumer to take on an active role in debt settlement, and achieve the same or better results without having to pay a fee.  Many people are unaware that they can negotiate the amount owed as well as the way that the company will report your information to the credit bureau.   

The first thing that one needs to do is to determine if the debt is still with the credit card company or if it has been turned over to a collection agency.  If you are unsure or do not know, you can simply call the credit card issuing company and find out.  If the debt has been transferred to a collection company, the tactics used will differ from those that are still held by the card issuer.  Credit card companies are highly regulated and their procedure for debt collection can be more ethical than those whose debt has been turned over to a collection agency.

If the debt is still owned by the issuer, they will not want to talk to you about a debt settlement until you are 60 – 90 days delinquent on the account.  Once they understand the seriousness of your particular situation and they feel it is in their best interests, the credit card issuer will be more willing to discuss a debt settlement agreement.   Currently, there are many companies that will settle for 35 – 50% of the balance either in one lump sum payment or spread out over several payments within 6 months or so. This is especially true if the issuer feels you are on the verge of bankruptcy or if you have insufficient assets to cover the debt.  It is best, at this point, to avoid having the debt sent to a collection agency.  Sometimes, this can keep the delinquency completely off of your credit report (depending on what was negotiated).

Most serious credit card debt (90 -120 days delinquent) will be turned over to a collection agency.  In spite of all the horror stories that one hears about bill collectors, fear not!  At this point, the collection agency will either pay or get paid for about 6 to 7 pennies on the dollar (or less), and the original credit issuer has nothing more at stake.  For this reason, it is always good to make your first offer to a collection company below 25% of the current balance.  This would leave the collection agency with a tidy profit, and sometimes goes no farther in collection procedures. 

When contacting either the card issuer or the collection company, it is imperative to keep good records of all conversations.  Once a settlement has been reached with a collection company, get your terms in writing before making any payments.  The best means of contact is by registered, return receipt mail.  Although not completely out of the question, it is best to refrain from talking to collection agencies on the phone.  If it is necessary, documenting every conversation is of utmost importance.   Again, any agreement should be in writing and should, at a minimum, declare that the collection agency accepts the offer “without recourse”. 

Never look too eager to settle.  The older a debt gets, the smaller the settlement offer.  Use the threat of bankruptcy to your advantage.  Never disclose where you work or where you bank.  This is important information to keep in mind as you will not want to use a personal check to make any payments to a bill collector.  Once you get the debt paid, you can even get in touch with the original card issuer and tell them to report the debt as “paid”.  (This can help to offset the negative rating of having the collection account in the first place.)

Although it may seem like a long, uphill battle, the added benefit of not having to pay a fee for what you can do yourself is worth the little time and effort that it takes to go through this process with your various credit card issuers and/or debt collection companies.  Don’t be intimidated and do not get angry on the phone.  A level head and a little bit of negotiating skills can end up going a long way.      

(Cites:  Lexington Law, BankRate.com and CreditCards.com.)