Are you drowning in overwhelming debt and looking to settle the balance? You can hire a debt settlement company to do the legwork for you or do it yourself. If you choose the latter, it’s worth familiarizing yourself with best practices to have the best chance at getting the desired results.
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Understanding Credit Card Debt Settlement
Before diving into the specifics, here’s an overview of how credit card debt settlement works.
What is Debt Settlement?
Debt settlement is a strategy that involves negotiating with your credit card company to secure a settlement offer for less than what’s owed. In most instances, you’ll offer a lump sum payment or two large payments to satisfy the debt. And if the credit card issuer agrees, the remaining debt will be forgiven once you remit payment.
The Benefits and Risks of Settling Credit Card Debt
Benefits:
- You could pay off your debt much sooner.
- You’ll only pay a fraction of what you owe.
- You can avoid pesky fees charged by debt settlement companies.
- You can get peace of mind knowing your debts are resolved.
Risks:
- There are no guarantees that creditors will accept your offer.
- You will continue to accrue penalties until the debt is settled.
- Your credit score will be negatively affected, as the account is reported as “settled” instead of “paid in full” once the balance is resolved.
- Any forgiven debt exceeding $600 must be included as taxable income on your tax return.
Can You Negotiate a Debt Settlement On Your Own?
Again, you can work with creditors to settle debt on your own. You can also hire a debt relief company to help you or do it for you.
What Steps Should You Take Before Starting Negotiations?
If you choose to handle negotiations, follow these steps to help make the process as seamless as possible.
Assessing Your Financial Situation
The first step is to evaluate your finances. More specifically, how much can you afford to allocate toward settlement offers? If this figure is small, you can try saving up over time and making cuts to your budget to free up more cash.
America’s Leader in Credit Card Debt Relief and Debt Consolidation since 2002. Over 850,000 Clients and $18 Billion in Debt Resolved.
Reduce Unsecured Debts Such As Credit Cards, Loans, or Bills. Regain Control of Your Finances. Talk with a Certified Debt Specialist.
Debt Consolidation Loan Options. Talk to a Certified Debt Counselor to Help You Achieve Financial Freedom Faster. Apply for a Quote.
Understanding Your Debt
Once you have a figure in mind, assess your debt balances. Take note of the interest rate, how much you owe, and most importantly, the status of the accounts. Doing so helps you identify which debts to prioritize when you’re ready to move forward.
Gathering Essential Documentation
Be sure to gather pertinent documents before calling your creditors and lenders. Have your pay stubs, bank statements, and monthly expenses handy, as creditors may ask specific questions about your finances during the negotiation process.
What’s the Negotiation Process for Credit Card Debt Settlement?
When you’re ready to move forward, here’s what to do next.
Contacting Your Credit Card Issuer
Call the customer service number on your statement or the credit card issuer’s website. Tell them the reason for the call and emphasize the need to settle your outstanding credit card debts.
Communicating Effectively with Creditors
You want to be as polite and honest as possible during the call. Even if the customer service representative has a negative tone, stay calm and clearly communicate how much you’re willing to offer to settle your debts.
Opening Negotiations: Key Points to Address
The credit card issuer may start by throwing out a number. If so, be prepared to counteroffer if it doesn’t meet your needs. But if they ask you to provide a figure first, reiterate your desire to settle and why you need to take this route to make your proposal more convincing.
Proposing a Settlement Amount
Start by offering at least 30% to 50% of the outstanding balance, assuming you can afford to pay this amount in a lump sum or no more than two installments. Again, be sure only to offer what you can realistically afford to pay, or the creditor may accelerate collection activities, like increased phone calls from debt collectors.
Quick note: Be sure to jot down the names and titles of the representatives you speak with. Also, note the date of the call and the outcome. It may take several attempts to reach the desired results, but your efforts could be well worth it.
America’s Leader in Credit Card Debt Relief and Debt Consolidation since 2002. Over 850,000 Clients and $18 Billion in Debt Resolved.
Reduce Unsecured Debts Such As Credit Cards, Loans, or Bills. Regain Control of Your Finances. Talk with a Certified Debt Specialist.
Debt Consolidation Loan Options. Talk to a Certified Debt Counselor to Help You Achieve Financial Freedom Faster. Apply for a Quote.
Reaching an Agreement
Once a settlement is reached between you and the creditor, get the agreement in writing to avoid any confusion later on down the line. The agreement should include the settlement amount and payment plan (if applicable) and state that the remaining balance will be given. Verifying that all fees and interest will no longer accrue once the settlement is paid in full is equally essential. Keep copies of the settlement agreement along with proof of payment in case issues arise later on down the line.
Effective Strategies for Successful Negotiation
Below are some additional tips to help make your case more convincing when speaking with creditors.
Highlighting Financial Hardship
This is perhaps the most important part of the entire process. Your case must be compelling enough to sway competitors. But if you are vague and fail to provide the specifics of your situations, you may not have much success with your negotiations.
Using Comparisons and Negotiating Leverage
It’s also worth sharing your intention to use a debt settlement company with the creditor if they’re unwilling to work with you. This may help your case, as it shows you’re committed to being proactive and resolving the balances before hiring someone to do it for you, potentially delaying the process.
Setting Realistic Goals
As previously mentioned, you want to be realistic about how much you can afford to pay to settle your debts. You should do so before starting negotiations.
Avoiding Common Pitfalls
You want to understand the terms of the settlement offer before signing on the dotted line. It’s equally important to get the agreement in writing – verbal promises may not hold up if disputes arise later on down the line.
Consulting with a Credit Expert or Professional
If you have reservations about the debt settlement process or lack the confidence to handle it on your own, consider hiring a reputable debt settlement company. They can devise a tailored plan of action or offer other suggestions to help you resolve those pesky debt balances.
America’s Leader in Credit Card Debt Relief and Debt Consolidation since 2002. Over 850,000 Clients and $18 Billion in Debt Resolved.
Reduce Unsecured Debts Such As Credit Cards, Loans, or Bills. Regain Control of Your Finances. Talk with a Certified Debt Specialist.
Debt Consolidation Loan Options. Talk to a Certified Debt Counselor to Help You Achieve Financial Freedom Faster. Apply for a Quote.
Conclusion: Negotiating Credit Card Debt Settlement By Yourself is Possible
You can settle your debts on your own or hire a company. Either way, it’s worth familiarizing yourself with how debt settlement works, along with best practices, before getting started.
FAQs About Negotiating Credit Card Debt Settlement
Start by offering between 30% and 50% of what you owe. Make sure you can actually afford this amount, or hold off on settlement efforts until a later date.
It depends on the credit card issuer, but it’s not uncommon for some to settle for up to 50% of what’s owed.
Yes – the process is referred to as debt settlement.
