How to Negotiate a Debt Settlement with Your Credit Card Company
It Can't Hurt to Ask!
If you have fallen into a deep pile of debt, especially if the majority lies in credit cards, the worst decision that you can make is to not call the credit card company. Many people are embarassed of their debt, and therefore avoid representatives of the credit card company like the plague. Let me reiterate: it's a mistake! As soon as you realize that you've fallen into debt, you should immediately pick up the phone and call the credit card company. Among other things, you can attempt to negotiate a debt settlement.
First of all, a debt settlement is not always a wise choice. Like any decision you make about your credit, it can have both positive and negative consequences. A debt settlement occurs when you rack up a sizeable amount of debt, then agree to pay the credit card company (or other creditor) a lower amount in full. For example, let's say that you've collected $10,000 in credit card debt. You've just lost your job and you aren't sure when you will be able to find another one, but you have $6,000 in savings. You would call your credit card company and offer to give them a $6,000 lump sum to close the account. At that point, the credit card company can either agree to take the settlement or they can refuse.
Why would a credit card company want to take less than they are owed? It's simple, really. Most people to whom settlements are offered are dangerously close to bankruptcy. Since a credit card is an unsecured account, filing for bankruptcy would ensure that they never get paid anything at all. In taking a lower settlement amount, they at least receive a percentage of what they are owed.
This might seem like an easy way out, but there are negative consequences. Creditors are allowed to make notations in your credit report when an account is closed or settled. Next to the settlement amount, they might note, "settled for less than full amount", which future creditors will see when they access your credit report. They might be reluctant to extend credit to you because you've been given a settlement in the past.
Regardless, a debt settlement is sometimes the only option for someone who is floundering in debt.
If you've decided to negotiate a debt settlement, the first thing to do is call your credit card company. Although you will want to get everything in writing later, it is better if you explain your situation over the phone. You will not be able to negotiate a debt settlement with a customer service representative. Instead, briefly explain the purpose for your call, and ask to speak with an account specialist. You will either be transferred or given another number to call so you can speak with someone who can make these decisions. Once you get that person on the phone, you'll need to explain your situation in greater detail.
Inform the account specialist that you are having trouble paying back your debts, but that you are willing to write them a check for a lump sum if they agree to a debt settlement. Tell them the amount of money you are willing to pay, and that you don't have any other resources at your disposal.
If the account specialist agrees to a debt settlement, you should immediately ask for confirmation in writing. Never send a check, money order or other payment unless you have a written agreement. If you were to send the money without having anything finalized in writing, you might wind up without a closed account and you would still have to pay the remaining balance.
A debt settlement should be a last resort as a debt management solution. You might want to start by trying to negotiate a lower interest rate or by cutting up the card so that you don't use it again until the debt is paid off. Talk with a debt management specialist to obtain advice in your specific situation.
Published by Steve Thompson
Steve is a full-time freelance writer. In addition to the more than 3,000 articles he's written for AC, he has also written articles and other materials for more than 100 happy clients. He enjoys writing abo... View profile
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- Make sure that you get a debt settlement in writing.
- Try other options first, such as negotiating a lower interest rate.
- Make sure you can handle the negative consequences of a debt settlement.
13 Comments
Post a CommentBeware of the tax bill on your debt that is forgiven, you will have to treat it as taxable income. Ifyou are on social security it will throw you in a higher bracket and you will still have to come up with more money
Beware of the tax bill on your debt that is forgiven, you will have to treat it as taxable income. Ifyou are on social security it will throw you in a higher bracket and you will still have to come up with more money
Part of the value a debt settlement company offers is that they already know who to talk to, weather that is the creditor directly or collection company. They know which companies will work out offers, the history of offers these companies have made in the past and therefore be able to negotiate faster and with confidence. True you do not want to pay a bundle upfront to any service, but for a reasonable amount to start a settlment service it can be well worth the price. Even getting a free evaluation is very helpful, they may tell you, NO Amex will NOT settle anything.. now you know calling is not worth your time.
Justin you are correct. Calling and asking for help without a clear plan can result in trouble. They may even cancel your card and or up your rates because they think you're not going to pay!
http://www.creditcardbailout.com has a cool tool to show you instantly what your debts could be reduced by using a credit card bailout plan. It's free to use and mess around with. I was shocked how much my debts could be reduced by! I'm sick of paying crazy interest rates, at this pace I'll never get out of debt! Time to get out of debt for good and dump credit cards altogether!
I second Justin on this. Loose lips sink ships - keep your cards to yourself until the last minute. They will try to do the same and might be more experienced, but if you find out that just keep repeating your arguments and how willing you are to reach an arrangement ONCE they tell you what would be acceptable to them. Find more on http://howtonegotiatecreditcarddebt.faildot.com/
This is a good article, but the only comment I have is that as a professional negotiator myself, Not in the credit indusctry, the last thing you want to do is call the company and say I can give you $xxxx dollars. The old rule of first to say a number loses. Just remember, hold off on your number discussions and try to get them to say what they are seeking before you speak any numbers. You may $10,000 in the bank, but they may say we will settle for $7,000, of course, take it and run and enjoy your $3,000 of extra money you saved just by not opening your mouth.
$5000 in debt and no assets and no income. A May credit card bill of $2000 has ballooned to $3000 due to 29% interest and monthly penality of unpaid bills since May. Who can I call at Bank of America to settle? I have $2000 to settle borrowed from family.
How do you get the clandestine dept to talk to you. Am trying to pay off a debt in full and they willnot talk to me. Are they just stupid?
Any advice on how you get to the clandestine department inside American Express?
I'm dealing with Amex, too. They refuse to work with my credit counselor (said it's against their policy), and they won't budge with me either. I just got some money and would like to negotiate, but all I get is the runaround.