Settling debts is not easy. Many individuals ask us for tips to settle credit card debt.
Settling your debts may be possible when a verifiable hardship exists, such as medical problems, unemployment, underemployment, divorce, or death of a family member. Recent credit card debt is more difficult to settle than other kinds of debt (medical debts in particular are generally a good candidate for settlement).
The customer service representative at the credit card company or their debt collectors don’t have much incentive to settle. It’s easier to negotiate once those debts have been charged off and sold to a debt collection agency, but by that point one’s credit has been severely damaged.
Also, debts sold to a collection agency may later become time-barred, meaning there is a statute of limitations for collecting the debt. Be sure you understand your consumer rights before making payment arrangements on a time-barred debt as your actions could, restart the clock, on the statute of limitations.
How to Try to Settle Credit Card Debt
To try to settle credit card debt with the credit card company you can call or write them and offer a lump-sum amount to settle the outstanding debt, or arrange a workout agreement. A workout might help you get relief from certain fees, but in either case, your credit will be negatively impacted.
One option instead is to look at the possibility of signing up for a Debt Management Plan (DMP). This allows you to let a certified credit counselor, use a pre-negotiated payment agreement so you can avoid having to contact your creditor directly.
If you’re going to try to negotiate alone, you’ll probably have to be persistent. Creditors may say no at first, but will be more likely to agree after the situation deteriorates. They will only consider a settlement after it’s clear that there is a problem and they might not ever collect any of the money you owe them. Remember, settling debt may have negative tax consequences, and the settlement can impact your credit report.
Before approaching your creditor about a settlement consider a session with a certified credit counselor. You don’t have to sign up for a DMP, just attend a credit counseling session to learn to create a budget and assess your financial situation. You may learn that there are better options than a settlement. If you are still determined to negotiate a settlement after you get counseling, then you’ll have a good budget to work from so you’ll know exactly what terms to ask for.
About the author:
Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovate ways to motivate and educate community members and students about financial literacy. Melinda joined credit.org in 2003 and has over 19 years experience in the industry. Credit.org is a nonprofit financial counseling agency specializing in Debt Management Plans and helping people get out of debt.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.