Introduction
Debt settlement is a process of negotiating with creditors to pay less than the full amount owed. It typically applies to unsecured debts like credit cards, medical bills or personal loans. It is often used as a last resort when a borrower can’t afford to pay off their debt in full.
What to Know About Credit Card Debt Settlement
When you use a debt settlement service, instead of paying your monthly bills, you will put money in an escrow account that the settlement company manages. The company will then use the money in the account to negotiate a lower payoff amount for a fee. Generally, this means offering your creditor a lump sum that’s less than the full amount owed. Sometimes, a creditor will accept a series of payments. Of course, your credit card company is under no obligation to negotiate with you, and some have a policy not to. That said, many creditors will forgive debt under the right circumstances. They consider how likely they are to recover what you owe, how much it might cost to pursue you for payment and how long it might take to claw back their money. In most cases, credit card companies won’t negotiate with consumers who are current on their accounts and capable of repayment.
Is Credit Card Debt Settlement a Rigid Number?
There’s no specific percentage that guarantees a successful debt settlement. Creditors are, after all, under no obligation to settle and forgive any part of your balance. Each creditor is unique when it comes to their willingness to negotiate with the debt settlement company you’ve hired, and not all debts can be settled.
Can You Negotiate Your Credit Card Debt Settlement?
It’s possible to go the DIY route with debt settlement, but it’s not a particularly easy process. It involves directly communicating with your creditors to reach a mutually agreeable settlement without the involvement of a third-party debt settlement company, which many people find intimidating. Although you’ll save money on fees, you’ll still have to save money for a lump-sum negotiation. In addition, there’s no guarantee your payoff offer will be accepted. While working with a debt settlement company comes with a fee, it also comes with the advantage of professional negotiators who understand how to work with creditors, and can help you navigate the paperwork. Many companies also have existing relationships with major creditors, which may lead to better settlement terms than you might get on your own. You would need to weigh the potential cost and time savings against the added expense.
How to Negotiate Credit Card Debt Settlement Yourself?
If you’re negotiating on your own, you’ll want to explain your financial situation to your lender, and the sooner, the better. If your lender understands that you cannot pay your bills and why, it will be more likely to work with you on a solution. Make a thorough list of all your debts, including creditor names, types of debt, and the total amounts you owe. Examine your monthly budget, income, and expenses to determine how much you can realistically allocate toward settling your debts. Some creditors will want a lump-sum payment, while others will accept payment plans. Regardless, you need to have the cash to back up any settlement agreement. When you are ready, make the call to your creditor. You may be able to resolve the settlement in one go, or it might take a few calls to find an agreement that works for both you and your creditor. Start by lowballing, and work toward a middle ground. If you know you can only pay 50% of your original debt, offer around 30%. Avoid agreeing to pay an amount you can’t afford. Once a settlement is reached, ensure you receive all terms in writing and understand them thoroughly before finalizing. A written agreement holds both parties accountable. They have to honor the agreement, but if you miss a payment, the creditor can retract the settlement agreement, and you’ll be back where you started.
Additional Ways to Lower Your Credit Card Debt Settlement
If you’ve experienced a hardship that makes it difficult or impossible to repay your debt, you can ask your creditors about debt forgiveness. Credit card debt forgiveness means your creditor decides to permanently cancel some of your debt. They may agree to be flexible if they’re convinced that you intended to pay them but genuinely can’t afford to. If you can pay off your credit card debt, but you need a bit more time or want to reduce what you pay in interest, you may consider a debt consolidation loan or a balance transfer credit card offer. If you can’t pay back your debts, or doing so would be very difficult, bankruptcy may provide a new financial start.
Conclusion
There isn’t one single best debt relief option. What’s best for you ultimately depends on your debt burden and how long you’ve been unable to repay your balances. However, the most efficient method of paying down your debt while having the smallest impact on your credit is likely the best option for you. Explore all the relief methods and consider the full impact of each before making a final decision. If you’re not sure how to approach debt relief, consider financial counseling. A certified financial counselor may be able to help you choose the right method for you.
