With hard economic times in the United States, more and more people are falling behind on payments for both secured and unsecured debt. Credit card debt is one of the top three debts that individuals are falling behind on and many people are wondering if settling credit card debt is the answer. There are many things to consider before you deciding is settling is right for you. There are three main things that you must know before you begin to settle your credit card debt.
Step One: Know the Debt Settlement Process
To be eligible for debt settlement, first of all, you must stop paying your credit card bills. This may seem to contradict the process, but no company will settle with someone who is making regular or fairly regular payments. Even if your payments have been less than the minimum required, credit card companies are still receiving regular money from you.
Once you stop making your payments, you must not make a payment for at least three months before trying to negotiate. During this three month period, you will receive many calls each day from each company. They will call every number they have for you including your work phone and cell phone if you have provided this information to them.
Companies will want you to give in to the pressure and make a payment, but doing so will hinder the settlement process. During this time, you will also receive many letters from companies telling the state of your account and that legal action may be taken against you. You must ignore all of this and continue in your non payments.
During this time, do your best to put aside all money that you can for the settlement itself. Take what you would have been paying to your credit card companies and save it for the lump sum they will ask for. Legally, you can ask them to stop calling a work number and they have to comply; but, they can continue to call your home.
Once you have stopped payments for three months or more, you are ready to negotiate. You can do this yourself or hire a debt settlement company to do it for you. Hiring someone will cost you a percentage of the settlement amount or a set fee depending on the company. This may seem counter productive when the main reason you are seeking settlement is lack of money, but companies can typically get lower settlement amounts than individuals.
Step Two: Know How to Negotiate Credit Card Debt
Negotiating credit card debt is a tough business and it is not for the faint of heart. By this time, you will be dealing with a collection agency instead of the credit card company itself. The collection agency employees will get a commission for every collection they make, so intimidating you will be part of the tactics that they use. Do not give in.
It is best to do everything in writing. Talking with a collection agency will usually lead to them putting a huge amount of pressure on you and you becoming upset at the pressure, so only call the company to get their address. Write a letter stating your account, how far it is past due, what is owed, and how much you are willing to pay in a settlement. Send everything return receipt requested and then wait for a written response.
Keep copies of everything you send as well as the return receipts that prove the company received your letters. If you do talk to anyone on the phone, right down the date, their name, the length of the conversation, what was discussed, and the operator number, if they have one. Collection agencies have high turn over rates, so names and dates are very important.
Most companies will always reject your first offer so make it lower than you expect to pay. They may counteroffer, after which you should always respond with a lower offer than their counteroffer but higher than your last offer. The time between correspondence may be a month or longer, but the longer your debt remains unpaid, the more they will be willing to negotiate.
You can also use the threat of bankruptcy as a negotiation tool. Tell them that if you can’t settle this debt for a reasonable amount, you will have to file for bankruptcy. Companies know that once you file, they won’t be able to get anything from you and legally, your case will be closed. They don’t want this to happen so this may push them to continue negotiations.
Step Three: Know How to Make Your Payments
Once you have reached a settlement amount, make sure you have it in writing from the company on company letterhead. Call the company and ask to speak to the person whose signature appears on the letter and confirm with them that they did indeed send the letter. If the person no longer works there, ask for another letter with the signature of a current employee. Follow up any phone conversations with written letters.
When all this is in place, you are ready to make your payment. Remember that, even though an amount has been settled on, the company will still try to find a way to get more money from you. They will be looking for a mistake on your end, so don’t make one. Make your payment in the amount and time frame the company requested in their agreement letter.
Never pay with a personal check. They will then have your bank information and could use it to try and get the rest of the amount or sell it to other collection agencies. If you are settling for your business, never pay with a business check for the same reasons. Pay with a cashier’s check or a money order purchased from a bank other than your personal bank.
Make a copy of the cashier’s check or money order and place the copy in a safe place. Send it return receipt requested and include a letter, a copy of their agreement letter, and request a letter stating that everything is taken care of. You may not receive it, but at least request one. Then if there is a question, you have all the proof you need.
You may receive a call or two after this just as an additional intimidation technique. Just ignore the calls or tell the person that you have settled the debt in accordance with the agreement and request that they stop calling. Settling can be stressful but following these tips can help the process go much smoother.
Settling debt in this manner is a last resort when you simply are unable to pay what you owe. Before deciding to go this route to debt settlement look into things like debt consolidation, making snowball payments and asking your creditors for lower interest rates. Just know that ultimately, you can get out of debt. Then, you can work on rebuilding your credit.
No matter what your current credit situation is be sure that if you are going to obtain a credit card that you find the card that has the best benefits for your particular situation. Often secured credit cards, prepaid credit cards, and other types of bad credit credit cards are an ideal way to begin the process of rebuilding credit after a debt settlement. Use our free tool to find and compare the best credit cards online today!
- Will settling credit card debt hurt your credit?
- How to Write a Credit Card Debt Settlement Letter
- How can I negotiate credit card debt?
- When to Settle Credit Card Debt
- How do I negotiate with credit card companies?
- Can credit card companies garnish your wages or take away your house?
- Can a collection agency sue you?