Credit Card Companies

How to Negotiate a Debt Settlement with Credit Card Companies

If you’re facing a mountain of credit card bills you simply can’t pay each month, you are not alone. According to the latest numbers from the Federal Reserve, the total credit card debt in the United States is just short of a trillion dollars. This article will explain how you can negotiate a debt settlement with credit card companies. Yes. Regardless of what creditors will have you believe, everything is negotiable when it comes to unsecured loans.

What is Debt Settlement?

A debt settlement is an agreement with a credit card company to settle the amount that you owe on the debt for a reduced amount. In most cases, the settlement amount is paid as a lump-sum

What Does Negotiating With Credit Card Companies Mean?

The purpose of a debt settlement is to reach an agreement that works for creditors and debtors. Creditors, quite naturally, want to be paid in full but they risk getting nothing if a borrower files for bankruptcy. Accepting a reduced amount saves creditors the legal costs of a lawsuit and allows borrowers to avoid bankruptcy.

When Can You Negotiate with Credit Card Companies?

You can attempt to negotiate with a credit card company at any time, but your approach will depend on your circumstances and timing. If you’re not having financial difficulties but you have great credit, you can ask for better terms. The worst they can say is “no” and you can take your business elsewhere. However, when times are tough, it’s best to call and try to make a deal as soon as you know you won’t be able to repay your debt. The best time to settle credit card debt is before it has gone to collections.

How Do You Negotiate with Credit Card Companies?

When you negotiate with a credit card company, preparation is key. Lay out your case in writing first so that you know the full picture of your monthly income and expenses. You’ll need to be able to explain to the company why you are no longer able to pay the debt and the particular circumstances that have gotten you to this financial crossroads. It’s also helpful to know your rights as laid out by the Fair Debt Collection Practices Act. There are certain things that a creditor can and can’t do with regards to collecting outstanding debts.

Negotiating with credit card companies can get messy

All told, negotiating with credit card companies isn’t easy or pleasant. While they’re not allowed to be abusive, they don’t have to be nice. In fact, some investigative studies have found this process can be incredibly taxing with creditors and collectors referring to debtors as “deadbeats” and urging them to cash in their retirement funds for settlement purposes. Debt relief companies employ certified debt arbitrators that can block the pushy tactics some creditors use.

It may take several attempts to get in touch with someone who can actually help negotiate a debt. The key is to keep trying. If you feel that you aren’t making progress, ask for the credit manager. State your case and negotiate from the original credit balance without including extra fees and penalties. Don’t ever agree to the first offer that is presented and be leery of offers that include monthly payments. Monthly payment settlements won’t provide as steep of a discount on the debt as a lump sum settlement. Finally, many debtors find better luck negotiating settlements at the end of the month as collection agents often have monthly quotas.

What is a Debt Settlement Agreement?

If your negotiations are successful, a debt settlement agreement should be considered a legal agreement, and it would be a mistake to pay anything without having that agreement in writing. Make sure that you receive written confirmation of the settlement agreement from the credit card company. Once you receive this letter, you’ll need to make payment within a day or two.

Can You Do it Yourself or Should You Get Help?

There is nothing stopping you from negotiating directly with your credit card company. However, negotiating with credit card companies and collectors can be both time-consuming and disheartening. People who use debt relief companies generally have higher success rates and obtain larger debt reductions.

Related: How to pay off credit card debts?

Benefits of Having a Debt Settlement Company Do it For You

There are several benefits to having a debt settlement company handle your credit card debt negotiations. If you’ve been receiving harassing phone calls, letters, or emails, employing a debt relief company will help reduce collection calls. When you hire a certified debt arbitrator you get the peace of mind of knowing you are receiving the best settlement deal possible. Professional debt relief companies deal with credit card companies on a daily basis and have developed solid working relationships with the decision makers in their debt resolution departments.

How to Hire a Good Debt Settlement Company

Negotiating a debt settlement is a serious decision. You should take care in selecting a company that has the experience and commitment to customer care to deal with your case. Look for firms that are accredited by the American Fair Credit Council (AFCC). Ask for a price schedule and an estimate of the cost of their services. Read customer and professional reviews on their customer service. Do they offer extensive customer support? Do they provide a clear timeline for their debt settlement program?

Related: Check out SuperMoney’s reviews of the Best debt settlement companies here.

How Much Debt is Required to Qualify?

The minimum debt owed to use a debt settlement company varies by company. Some companies require as much as $7,500 to $10,000 in debt, but there are companies that will work with consumers that have less debt. The only issue is that the debt reduction a debt relief company can provide on smaller debts may not justify the fees. Reputable companies will often suggest alternatives, such as debt consolidation and consumer credit counseling for smaller amounts.

Examples of Debt Settlement Agreements

Mary owes $14,000 on her credit card. She is four months behind on payments, which has already affected her credit rating. If she filed for bankruptcy, her score would plummet, but if she only paid minimum monthly payments, it would take more than 10 years to pay off her debt at a total cost of more than $20,000. Mary is able to negotiate a debt settlement agreement for a lump sum of $10,000, saving a significant amount of money over the long-term.

John owes $30,000 on a credit card that he would like to settle. He hires a debt settlement company to assist with the negotiations. John follows the company’s instructions, and the debt is eventually settled for $15,000. John then pays an agreed-upon fee (15% to 25%)to the debt settlement company for a total saving of 25% to 35% of the original debt.

Where to Look to Hire a Reputable Debt Settlement Company

While few of us set out to not pay our debts in full, life happens. If you are struggling to even make minimum payments on large unsecured loans, consider negotiating a debt settlement. Check out SuperMoney’s reviews of the best debt settlement companies here.There are serious drawbacks to consider, such as damage to your credit score, but it is often a better option than bankruptcy and consumer credit counseling.