Let's say you owe more than you can pay on your credit cards. On top of that, something bad happens: you lose your job, have medical expenses, your business fails, whatever. There's no way you can pay off your credit card debt now.
You don't have to.
No, I'm not talking about bankruptcy. I mean you can negotiate credit card debt settlement (or have a lawyer or debt relief company do it for you). What it comes down to is this: credit card companies know they're the last in line to get money if you declare bankruptcy. So they'd rather deal with you now, keep you from declaring bankruptcy, and settle for something, rather than nothing. Maybe fifty cents on the dollar or less. The rest of the debt just disappears.
It's not easy. It's a long, frustrating process. But if you're good at talking on the phone, persistent, and can deal with a fair amount of crap, negotiating your own credit card debt settlement is something you can do. If not, that's why God made lawyers. Either way, though, if you can scrape up a lump sum that's maybe a third or half of your credit card debt, you've got a chance to erase the rest.
Remember my friend Matt? I talked to him after the whole auto loan incident, and he was actually cool with me posting about it. In fact, he must have thought his fifteen minutes of fame wasn't up yet, because he said, "Why don't you write about what I did with my credit cards?" I think he just wanted me to post something that made him look smart, which this does.
He was into the Forex thing a couple years ago (don't get me started) and was making good money, then wound up losing everything and barely escaped bankruptcy. But he negotiated his own credit card settlements on four different cards and got rid of about $15,000 of debt.
Based on what he told me, and what other people have said about this kind of thing, here's what you do.
If you're only behind a month or two, the credit card companies figure you'll probably pay eventually, so they don't want to negotiate a settlement. If you've been delinquent for six months, they figure you'll never pay and they'll sell your debt to a collection agency for pennies on the dollar and write it off, or spend the money to sue.
So when you're delinquent for about three to six months, you've got a sweet spot when the credit card company is most apt to negotiate with you. If you're not that far delinquent yet, plan for this. Start trying now to save or borrow or beg a lump sum to dangle in front of the credit card companies, when the time comes.
When the time comes, call the 800 number on the back of your credit card and ask for someone who handles settlement arrangements, or an account specialist, or a credit manager who deals with settlements. After listening to elevator music and getting switched around, find out if the person who answers has the authority to negotiate a lump sum settlement. If yes, then you've got the right person. Quick, get their name and extension to call them back in case you get connected.
Tell your situation, briefly. Disability, medical bills, divorce, stupid Forex, whatever caused the problem. You want to pay, but you can't, but you can offer them something at least. Hint at bankruptcy, because that scares them.
What you want to do is offer them a lump sum of around 30% of the debt you owe. That'll give you room to come up a little, but they'll probably settle between 30% and 50%. Not all of them will. If they think you can pay more, or if they're just in a bad mood, they might refuse anything less than 80%. Or, on the other hand, if you're really hard off, you could start at 10% and settle not much higher.
The catch is that you need to come up with the money to offer them a lump sum. Matt sold his Corvette and some furniture, which was about all he had. You'll have a little time to scrape it up, because the negotiations themselves might take a couple months, and you might talk them into letting you spread the lump sum out over three or four monthly payments. See if you can cash in your life insurance, borrow from friends, come up with something. Because the other choice really is bankruptcy, where you'll lose a lot more.
If they make an offer--let's say 70%--and you think they ought to go lower, tell them that's just not possible and ask them what you can show them, to prove that you can't pay so much. Give them time to pull your credit report and see that you're not paying any other cards either. Gather up your painful-looking financial statements (real ones, because they'll check) and show how much debt, how high your expenses, how little your income. Yes, this hurts, but just keep reminding yourself about that 50% or more of your debt that's about to evaporate.
If they've already come down and it looks like they don't want to go any further, maybe they'll compromise instead by reporting the debt as complete and current on your credit report, or they'll give you a little longer to pay the lump sum. It's like buying a car--you can haggle, up to a point. But you're at a disadvantage because you can't just walk off the lot and go somewhere else; you do either have to deal with these folks or declare bankruptcy.
Once you agree on terms, ask them to send it to you in writing, and read the contract carefully. If you're not good at legal stuff, now would be the time to have a lawyer look at it, even if you've done the rest yourself, because you want to make sure this isn't just a down payment, this is really a payment in full to pay off the whole debt, and everything else they promised is in there too.
Then make the payment, and you're done.
If You Want Help...
If you want to hire somebody to do this for you, there are debt relief companies that'll be glad to. They charge a percent of the outstanding debt, or a percent of what they save you, though beware of companies that charge an up-front fee. Honestly, unless you're really good at negotiating, they'll probably save more than they cost. Matt was good at this. He used to sell furniture and now he works in a cell phone store, so he can talk anybody into anything.
Another benefit of hiring somebody is that if you're getting debt collection calls, you can tell the collector to talk to the debt relief company that's representing you, and not call you anymore. Also, the debt relief people know how to stall, if you need more time to get your lump sum together, though even they can't stall forever. There are good companies and not-so-good ones, so check them out before agreeing to anything, if you decide to go that route.
All this will hurt your credit score. But look at the bright side: it's not as bad as bankruptcy. And it makes a big chunk of your debt just go poof. Gone.
8:30 p.m. February 1
Couple of things here. Debt settlement companies will promise you the moon and not necessarily deliver. Don't believe them if they guarantee anything. Check them out really thoroughly. If you want to get in an arrangement where you pay the debt settlement company a monthly fee, okay fine, but that may not be in your best interest. If you can come up with a lump sum by yourself and just want them to negotiate with your credit card companies for you, like PDL is saying, then focus on that, and don't get involved with anything else they say they can do for you. Don't send them any money before you sign paperwork and know exactly what you're signing.
9:12 p.m..February 1
Any amount of your debt that is written off will be counted as taxable income by the IRS. For someone in this situation, business losses, deductible medical expenses or low income due to loss of a job will probably mean that the additional taxable income won't have a major impact, but it's worth keeping in mind.
10:42 p.m. February 1
Isn't this just a scam? Not the debt settlement companies, the people who are refusing to pay the debts they agreed to. This is what caused the whole financial mess this country is in, peoplemaking debts and then not paying them. It's a way of scamming credit card companies out of what they're owed, which is passed along to everyone else who honestly pays their bills by charging higher fees.
11:13 p.m. February 1
Credit card companies are aware of the odds that a certain number of people will have problems and be unable to pay. They're voluntarily agreeing to write off the debt. It's part of their cost of doing business. They'd only get ten or fifteen percent selling to a collection agency and they'd pay more and get less to sue, so they're happy to do this.
11:58 p.m. February 1
That's like saying shoplifting is OK, because companies know they can't stop it and add it to the cost of doing business. It's morally wrong.
12:16 a.m. February 2
Big difference. A company won't hand something to a shoplifter and ask them to take it out the door. They try to stop shoftlifters if they catch them. Credit card companies offer this option. They'll sometimes actually suggest it in a letter to someone who's behind. They're willing and upfront about doing this for people. It doesn't help for you to be insulting people who are already in debt and feeling bad by saying they're scammers, when they're trying to do the right thing and pay as much as possible.
Comments are closed for this post.