How to settle credit card debt – where to start

To negotiate a successful credit card settlement for less than you owe, you obviously have to somehow force lenders start negotiating and make them want to settle with you. Depending on your situation, you should choose one or the other – stop making credit card payments to demonstrate your inability to pay or to softly ask them for some sort of debt relief without actually stopping payments but firmly implying that you will if no agreeable settlement is coming. Interesting that for vast number of borrowers it is easier to simply jump the gun and stop paying, than to make that first phone call and politely ask before stopping.

If you are seriously struggling and/or could care less about your credit history and scores for quite sometime in a future, then you should probably stop paying and then try to settle for a lot less than you owe. If however, you still want to have some resemblance of the good credit after you are done and have money to pay some of your debt, it is prudent to call, state your hardship a offer a credit card settlement. You can always stop your payments later if being nice does not produce a desired outcome, and start more serious debt negotiation.

Know what to negotiate

Often, if only few certain things like late or over-the-limit fees, balance transfer fees, sky-high interest rates go away, you may just make it. Some issuers and banks will be more willing to negotiate those unpleasant items than others. Ask your credit card issuer if that is something they would do. Again American Express may be easier on late fees while Bank of America and Chase may lower your interest by one or two percentage points.

If your annual interest rate is higher than 12%, request a lower rate. Do it while you are still making payments on time. When you negotiating such a credit card settlement, always ask to lower your current rate by 5% or 6%. You may settle for 2% or 3% cut in the end. Always be ready to back up your request by a not so veiled threat of looming delinquency if bank does not want to negotiate or its counteroffer is not good enough. Yet be reasonable.

Settling credit card debt – dealing with threats

At some point, you will likely be threatened to be referred to a collection agency and even by a lawsuit, wage garnishment and all those nasty things that every US consumer has been having nightmares lately. You need to be calm and steady, and politely let your creditor know that frankly, if this is how they want to negotiate credit card settlement when you are seriously trying to do it in good faith, then you simply do not care. Tell them that Chapter 7 Bankruptcy is always an option and besides, filing a lawsuit against you is not worth their time and money.

Negotiate credit card settlement – making an offer

When making an initial debt settlement offer, you can be as unreasonable as you want. Again, if you have not missed a payment or missed just one or two and by no more than 30 days, you can try to set up an affordable payment plan. But if you miss several monthly payments and already have 60- or 90-day Lates on your credit report, offer them as little as 5 cents on a dollar. Basically set a ceiling you do not want to go over and stick to it. Chances are your credit card lender will accept it, eventually.

Should you offer to pay a lump sum settlement of, let say, 25% to 40% of the outstanding debt balance? I would rather have settle for some monthly payment plan and here are two reasons why. By offering to pay a lump sum, even substantially smaller than you owe, indicates that you have money. Depending on how much your offer is, the creditor may be tempted to go after your savings. If you offer a monthly payment plan, the danger of such a knee jerk reaction becomes much less. The second reason is quite simple, you may need your cash for something else.

Negotiate credit card settlement – a few odds and ends

Once you settle credit card debt on your own and for less than you owe, hopefully for a lot less, get everything in writing. When negotiating, do not rush into agreement if your credit history already is a mess. If you qualify, the Chapter 7 Bankruptcy is still there, and while your are procrastinating, your credit cars debt gets older and harder to collect, and the creditors have more reasons to simply charge it off.

Before sending your lump payment by certified mail with return receipt, request a conditional debt satisfaction letter, stating that the entire credit card debt will be wiped out clean when the creditor gets whatever the sum you settle for. Such a letter will bullet prove any subsequent problems that may arise if you creditor decides to sell the remaining balance to a collection agency or a few. And know your state statutes, for both debt and judgment.

Credit card debt is a real burden. For individuals like yourself and also for the economy.  Since our economy has been stagnating at the very least and is based mostly on your spending, you should negotiate credit card debt quite vigorously, so you can free up your credit cards and spend again. And again. In fact, I think our government should offer free classes on how to renegotiate credit card debt yourself. It will probably create more jobs for debt counselors and support stuff than all the bail outs from both administrations, and stop all the talk about the need to launch a second stimulus package, which is now being pushed, albeit somewhat tacitly by none other than Warren Buffet. I would take it a step further – if your debt is more than 70 percent of your credit card limit, you must negotiate a credit card debt settlement. Yes dummy, it is now mandatory. Not only you will start buying all the toys and goods you never knew you needed all over again, but here is a bonus – negotiate your credit card debt down and you may take a high road to that coveted perfect credit score. Yet another thing you didn’t know you must have. Now that I got some grief out of my system, and also established without reasonable doubts that negotiating credit card debt is simply patriotic, ask yourself what you can do for your economy and read on how to do it.

Consumer credit card debt has basically reached a cool trillion. That is in U.S. dollars, not pesos. Much of it is in default as I type and even more is going to get delinquent soon enough for banks to be extremely worried. The supposed 6.5 percent of that trillion was at least 30 days past due in the first quarter of 2009. That is $65 billions USD in default already. For the month of May, 4 major credit card players – Bank of America, Citigroup, JPMorgan Chase and Capital One – reported close to 10 percent default rate. So it is safe to assume that close to $100,000,000,000 are in jeopardy, and with the growing and more importantly persistent unemployment, how far and how fast do you think it will grow? That’s good news for those of you who can’t or won’t declare bankruptcy, don’t want to trash credit rating or simply want to do the right thing. Banks after all realize that getting something is better than nothing, so negotiating a debt settlement with them could be easier than ever.

How to negotiate credit card debt

The first thing is to see if you have enough money to pay off you debt in one lump sum. This is what credit companies and banks want. You settle with a bank for whatever percentage, send the money, it closes your credit card and you are free and clear, sort of. When you offer a lump sum you can almost guaranteed to end up paying less than if you negotiate a payment plan. You can also demand that the difference between the amount you owe and the settlement amount won’t be posted as a charge off on your credit report. While we are at that, remember – charged off debt is often treated by IRS as regular and very taxable income. Well, try to renegotiate that.

Start negotiating by offering a lump sum settlement of no more than 15 percent of what you owe. How insolent is that? Not too much under current economic conditions. You have nothing to loose and everything to gain. Chances are you will eventually settle for an amount between 25 and 40 percent. Get every word in writing, needless to say.

Renegotiate credit card debt terms

If paying a lump sum is out of question, ask for a lower interest rate. Tell your creditor you want yours to cut in half since this is the only rate you can afford at this point. Or you are going to stop paying. Negotiating tough yet politely, may get you a very substantial reduction in your interest rate. Also ask to waive all fees including late, over the limit, etc. Those fees will be the hardest to renegotiate as they bring enormous amount of profits.

Try to negotiate a friendlier payment plan. Request your credit card issuer so you would make your monthly debt payment every two months, yet the account status on your credit report would remain Paid As Agreed. That is a hard one to get, especially if you have paid on time. However, cite some recent financial difficulties and potential future hardship, and in the end you may renegotiate an affordable plan. Drive home the point, that this is the best you can do and it is much better for a bank get their money slowly than not at all.

And most importantly, still try to lower your overall debt even if you can’t pay a lump sum. Your credit card is likely to agree to lower your debt balance and take a charge. May be by not as much, but as always, shoot for the moon, and you may just get it.

Negotiate credit card debt yourself

You can and should do it yourself. There is nothing about debt negotiation that warrants you to hire so called professionals, seek credit counseling and so on. While some recommend engaging an experienced, legitimate and reputable credit counselor to work out a deal for you, in my humble opinion, such thing simply doesn’t exist. No offense intended, but the vast majority of companies that help negotiate credit card debt settlements charge rather high fees or collect a percentage of the amount they get your creditors to forgive. Even worse, your credit history may suffer as well. Many are simply storefronts for the lawyers who have found their own little stimulus bubble that you fund. If you have phone and an hour a day to spare, can speak and write, you should do it yourself. To review your full monthly spending and evaluate the reasons for your debts and delinquencies, and to consider all options, and find a way out – you don’t need no one help. Increase income by getting a second job, spend less by spending less and changing lifestyle, pay down debt. This is how to negotiate credit card debt – period, end of story.

You can also get some much needed wisdom from these related posts on the debt topic:

Paying off debt fast – how to pay off credit card debt quickly

Debt elimination plans and strategies

Medical collections, unpaid medical bills HIPAA laws

Debt validation – your best shot against collection agency

Debt validation letter

Previously settled debt letter

Debt relief options and solutions

Renegotiate mortgage terms to lower monthly payments