by David Thompson
If you can't pay off your credit card debt and you're getting further behind in payments, don't be afraid to take action. You can negotiate your own credit card debt settlement. A credit card company has to pay to hire a debt collector to try to get money from you--money that they realize you may not even have. So they may be willing to negotiate a debt settlement in which you offer to pay them less than the total amount of the debt, and they agree to consider the debt paid in full.
The best time to ask for debt settlement is after you've missed about three payments on the card, but before the company sends your account to collections.
At that point, they'll realize that you're seriously having a hard time paying and they may not be able to get their money. But they haven't paid a collection agency yet or sold the debt cheap, so you can still negotiate with them directly.
Negotiating your own credit card debt settlement isn't easy, but it's not impossible, either. The hardest part is keeping up your confidence. When you're in debt and can't pay, you may feel alone, as if no one is on your side, and calling up a credit card company to beg for debt settlement only makes the embarrassment worse. But don't think of it that way. If you had the money, you'd pay. Since you can't, you're doing the next best thing, trying to pay as much as you can.
That leads to the first step: figuring out how much you can reasonably pay.
What Can You Pay?
Realistically, a credit card company might settle for one-quarter to one-half of the total debt that you owe. If you have a way to borrow or raise that much, such as if you're in the process of selling a house or car, or if you can borrow from relatives, you may want to make a lump-sum offer.
If you have income, but not enough to make the monthly payments required, figure out how much you could afford. You may want to offer a monthly payment plan while asking the credit card to waive late fees or ask that they remove a penalty interest rate.
Make the Call
Write down the important amounts and dates so you'll have them ready: how much you can afford to pay, when you could pay it. Then call the 800 number on the credit card and ask for an account specialist. There are companies or individual lawyers who will do this kind of negotiating for you, but needless to say, they charge for it. If you can do this yourself, you'll save their fees, and you'll also know that you're not getting ripped off with false promises.
What you want to do is come across as business-like and trustworthy. Be polite and to the point. Ask if the person you're talking to has the ability to negotiate a debt settlement, and if not, ask to be transferred to someone who can. Then explain briefly why you can't pay, whether it's due to unemployment, illness, a divorce, etc. You're not trying to get sympathy; you're trying to let the company know that you're not just being a dead-beat--you'd pay if you could, but this is why you simply can't.
Make an Offer
Then make an offer. It never hurts to hint that bankruptcy might be a possibility. Credit card companies know that they certainly won't get all their money and might get hardly any, if a person files bankruptcy, since credit card debt is unsecured.
Like any kind of negotiating, though, offer a little less than you really want to, so you can seem cooperative and offer more if need be. Also, if the credit card company won't compromise on the first things you suggest, like accepting the least amount of money you offer, ask if they'd be willing to eliminate some late fees or give a better report to the credit bureaus such as "paid" rather than "settled."
Don't Give Up
If you're not making progress, don't give up. Politely say you'll have to think about what they said, and try again in a week or two, or after you've missed another payment. You may either reach another person who's more willing to compromise, or you may find that the company is ready to talk as they see their chances of getting full payment decrease.
If you're lucky enough to receive an agreement that you can live with, write down the details of the settlement offer--the representative's name, the time and day you talked with them, and the terms you agreed on. Ask for a copy of the agreement in writing.
When it comes, check that it's the same thing you agreed to on the phone and sign it. Follow the terms of the agreement, and you'll have one debt taken care of.
New York Times video about the risks of paying debt settlement companies to negotiate for you.