More people than ever before are dealing with huge balances on their credit card accounts. Find out how negotiating a debt settlement might be able to help you out of this huge financial hole.
Before we start to talk about preparing for a debt settlement conversation, it is important to understand one key concept.
Credit cards are unsecured debt. That means there is no collateral attached to them that can be repossessed if you don’t pay back what you owe.
The fact that this is unsecured debt is what makes credit card companies likely to negotiate with you.
Debt Settlement Facts You Must Know
Before you make the decision to proceed with a debt settlement, it is important to understand that the process has both positive and negative consequences.
- First of all you have to realize that regardless of how much you know about debt settlement, it is mostly the people you deal with who’ll determine your success.
- You must be ready to persist – the process sometimes takes several months, because your creditor likely won’t easily agree to write off the money you owe them in the beginning.
- Creditors will sometimes threaten you with litigation. The general rule is that this will usually be a bluff – you can never be too sure. Make a careful investigation of the creditor, particular looking into their past performances, to get a clue of the litigation threat’s legitimacy.
- Some of the other considerations that you must bear in mind include, determining whether it would be prudent to make direct negotiations with creditors or to deal with their collection agencies, what to do if another firm buys your debt, what to do if an account you own is forwarded to a law firm, and what is required of you when judgments or liens are involved.
- The biggest negative results of completing a debt settlement is that it will have a severe impact on your credit report.
If you decide to pursue debt settlement with your credit card companies, here are some tips that will come in help during the process:
Use Your Natural Advantage
You should use the leverage you have during this negotiation.
If the creditor doesn’t negotiate with you, they stand to lose the entire sum that you owe them.
If they agree to a settlement, at least they can recoup some of their funds.
Because of this, you shouldn’t buckle under pressure when they reject your settlement requests.
Stay calm and focused on your goal of getting the best deal possible.
Make sure all of your conversations are documented.
Know What Amount to Offer Collection Agencies
The age and type of account in question are the factors that determine how much your credit card company is likely to accept as a settlement amount.
There is nothing “written in stone”, but the following are considered typical:
- 6-7 cents per dollar for recently charged off debts
- 1.5-2 cents per dollar for slightly older accounts which have been referred to one or two collection agencies
- A penny or less for accounts several years’ old or out-of-statute debts
Multiple Agencies Contacting You
If multiple agencies are contacting you to collect the same debt, it means that your creditor and the first collection agency have given up and have allowed another collection agency to pursue the debt.
This new firm has paid less for the same debt. This usually means they will most likely agree to a cheaper compromise than the first two parties.
Let the Creditors Do the Talking
You will get the best settlement when the creditor becomes more desperate to recoup their funds – never be in a hurry to settle.
To get the most out of the deal, you must turn down the first and even second offers, ensuring that they are the ones doing the pushing and not you.
However, you must also be sure there is a better deal available.
As time goes by, creditors tend to table some negotiations and this definitely increases your chances of getting better settlement deals.
Don’t be Fooled by Interest and Penalties Charged
These charges are usually fictitious and typically illegal since there are laws in every state determining the maximum interests that can be charged on these monies. The waiving of these fees isn’t a substantial concession from the credit card company or the debt collector.
Keep Good Records
All the terms of your debt settlement negotiations should be made in writing, never verbally. It is best to negotiate using letters, and these should always be sent through registered mail or by some other method that allows you to prove that they received your letter.
When Dealing With Creditors and Collection Agencies by Phone
Ensure that all telephone correspondences are followed up with letters in the manner described above. Also ensure that you get the details of the particular person you dealt with as well as the firm’s name, physical address, direct line, and fax number as well.
Having all of these details available will help back up the validity of the conversation.
Negotiating a debt settlement with your credit card company isn’t the right answer for everyone because of the potential negative ramifications. However, depending upon your circumstances, it may be the best option.