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How to Settle Credit Card Debt

How to Settle Credit Card Debt

The average person probably hopes they never have to learn how to settle credit card debt. Unfortunately, unsecured debts are easy to compile. When the necessities or luxuries of life present themselves, it is easy to use plastic to pay for them, even if the interest rate is over 20 percent. Credit card debts can spiral out of control quickly, despite making minimum payments on time.

Each month the card accumulates a balance and is not paid in full, the issuing company earns interest on purchases. Balances can grow quickly and if the individual can not make timely payments, the creditor will eventually send the account to collections.

Communicate First

When the debtor can not pay, it is important they speak with the company about their situation. When settling credit card debt is a problem that is expected to be temporary, such as the loss of a job or an emergency which needed to be paid for, request an extension on the due date. Some companies will consider lowering the amount due for a certain period of time as well.

During these delays, interest will usually continue to accumulate. Consumers who have been ignoring creditor phone calls will eventually lose the opportunity to negotiate with the company. After a time, the account will be sent to third party collections. These are businesses who buy bad debts for a fraction of the amounts owed.

Potential Dangers

By the time an account is sold to a third party collection business, the individual’s credit score has been reduced by multiple negative reports over an extended period of time. Although that line of unsecured capital can no longer be used, this is a good opportunity for the person to clear their debts for a deeply discounted amount. Depending on how long the account has been outstanding, failure to settle accounts with 3rd party collectors can result in a default judgment against the individual.

In the worst case scenario the company has a valid claim. They have followed procedure by trying to contact the debtor and after failing to do so, win a judgment in court. Depending on the state of the collection, the courts can then issue a bank levy. A levy allows the funds to be pulled from the individual’s account until the debt is paid in full, with interest.

Validation

Obviously, it is in the best interest of the debtor to take action sooner than later. The person with a steady income can negotiate a reasonable settlement or installment plan. The settlement process begins with speaking to a representative, obtaining their address, credit card being collected on, and full name. Then instruct them to wait for a validation letter. Validation letters are just that, they confirm the 3rd party company’s legal right to collect on an account.

This is an especially important step with older debts which may be past their state’s statute of limitations. Other accounts have been passed from one collection agency to another for several years and the consumer is being prudent by confirming their right to collect. Many validation letters are found online with varying levels of legal jargon. The basic requirements of the letter are to state the account in question, clarify that the letter is not a refusal to pay and demand proof of the company’s right to collect on the account.

Negotiate

When the appropriate information is provided, work out a settlement plan. Ask the agent what they are willing to settle for. The answer will typically be a forty to sixty percent discount on the total balance plus accumulated interest. Once they have stated their number, go lower.

There is no way to know exactly how much the agency paid for a person’s debt, but chances are there is room to negotiate. There is nothing lost by offering to pay only twenty percent of the amount owed. The company may reject it, counter-offer, or stick to their original number. One can assume a reasonable offer will not be refused, such as making a counter-offer of forty cents on the dollar instead of sixty.

Collections companies are eager to settle accounts and get bad debts off the balance sheets. Keep the lines of communication open. To receive favorable terms, be honest but firm about how much and when you can pay.