Credit Card Debt Negotiation or Debt Settlement
If you are up to your eyeballs with credit card debt, or any debt for that matter, one possible solution could be debt negotiation or debt settlement. This involves negotiating with your creditors to settle your debt for less than the face value. You could potentially reduce your debts significantly and/or reduce your monthly debt interest payment. However, this method is not for every one. And here is why.
Credit Scores take a plunge
When you negotiate with your creditors to accept a lower payment of the face value of your debt in return for a swift payment, they may report this to the credit bureaus. This will hit your credit scores significantly.
Hence, if you have very good credit scores, but your debt is piling up, debt negotiation or settlement with your creditors may not be the best thing to do. In this case, you should resort to budgeting, setting a systematic plan to pay of your debt and perhaps getting a 0% apr balance transfer credit cards to help with your debt reduction plan. You could also consider a home equity line of credit and consolidate your debt.
But if your credit score is really bad to begin with
But if your credit scores are really bad to begin with, then you may want to consider debt negotiation or settlement. The advantage of going this route is that you will considerably reduce your debt load, reduce the time to pay off your debts. If your credit score is poor to begin with, then getting a hit in your FICO scores will not matter as much.
DIY or Hire a Professional?
There are two ways to go about doing it. You can obviously do it yourself. Or you can hire professional firms to do it for you. The advantages of hiring a professional is that they will know which creditors will likely to accept a 30% of what you owe, which will accept 60% and which will not negotiate at all!. They also have experience doing this over and over again for many people.
Ending Thoughs
When you are deep in debt and your credit score is really bad, you may want to consider debt negotiation or debt settlement as you can drastically reduce your debt and the time it takes to fully pay it off. If your credit score is good, then you should not consider this. Instead, develop a systematic debt reduction plan or consider taking a consolidation loan instead.
May 7th, 2007 at 8:38 pm
About your credit score, yes it does go down, however you forgot to mention that when you start settling out your debts your score will go back up. Why because one third of your score is based upon how much debt you actually owe. Another thing is yes you do get negative remarks from going delinquent before settling but those marks only hold a negative bearing for no more than 2 years. This is the payment history portion of your credit score and is only a snapshot in time. So yes debt settlement can affect your score negatively at first but will have a long term good affect. Plus the main issue here is you will be debt free in a few years and save yourself thousands of dollars in the process and after all isnt it money that talks
October 29th, 2007 at 5:31 pm
We’ve been working on negotiating pay-offs of our credit card debt. Everyone has been very helpful and reasonable except for Discover who have been raging a$$holes. We have less than $3,000.00 in debt down from $4,000.00 that we’ve been paying on for over 20 years. We have paid Discover between $10,000.00 and $12,000.00 on this debt and they are the most rude, hateful and unreasonable company we’ve had to deal with during this process.
November 7th, 2007 at 6:20 pm
We were laid off 2 years ago and went into serious credit card debt starting a new business (over $100,000.) We tried debt consolidation but most companies would not work with us because some of our accounts were with American Express. I worked with Visa and Discover, but Amex raised my rates to over 30%. I have 3 Amex accounts now in default, they closed the accounts and sent them to collection. I set up monthly payments with collections, but am now finding out that my accounts are continuing to accrue interest and all my payments are not even covering the interest. I have begged Amex to work with me on paying the principle (have been a member over 20 years and charged over $1m on various cards) and they will not budge. My question is, if I tell them to $%*( off and not pay them, I know my credit score will go down, but what other ramifications are there? They say they can “come after me”, but what does that mean? the debt is unsecured - what can they do? Any comments/advice would be appreciated (btw, our preference would be to pay the principal rather than write off the debt.) Thanks Tammy
January 13th, 2008 at 7:26 am
I would be intrigued to know what happened with Tammy’s stuff too. We have 13 accounts totalling $114,000 - three of which are from American Express. A year ago when those minimum payments went up we lost control of what was a apparently a precarious position. Any insight on this is appreciated.
-Bridget
February 25th, 2008 at 6:07 pm
I am trying to make a settlement with National city Bank; I’ve offered anywhere from 62-75%; I’ve called 5X. They constantly say they don’t offer/ accept settlement.
Any suggestions?
March 29th, 2008 at 11:47 pm
[...] Mr. Credit Card writes about negotiating with creditors. Good post that I missed the first time around! [...]
June 5th, 2008 at 11:00 pm
An alternative to consider when you have a large amount of unsecured debt is filing for bankruptcy. It is not a devastating to your credit as it may seem and you will be able to start fresh without the hassle of dealing with the individual creditors on a case by case basis.
June 28th, 2008 at 6:40 pm
Hello:
I have a credit card question and am seeking opinion/advice. Four years ago after divorce and becomming a single parent I found myself in credit card debt and when late on payments, the credit card companies raised my interest rates to high twenties, low thirties. It didn’t take long for this to then put me over the limits. With the over limit fees and high interest, I was having a hard time making the minimum payments. It was always my intention to pay back the debt but was finding it impossible. I wrote certified letters to the 3 companies asking if they would close the accounts, lower the interest until I could get the debt paid off. I explained that I intended on paying the debt but was unable to with the high interest, over limit fees. I then explained that if they were unable to work with me, I would be forced to let them default. None of the three companies were willing to work with me. Therefore, I waited the 3-4 months of no payments (which then added late fees) until it was sold to a collection company. The companies then harrassed me at work, home and cell. They were threatening and abusive. I set up agreements with each of them starting with a large initial payment. From there, monthly payments were made. I got another job and worked at paying back these debts. One company was paid off and I never heard from them again. The second company was paid off and a few months later I got a call from a new collection company stating they had bought the account. I sent the Better Business Bureau a letter explaining the scam to get more money from me after I had a paid off letter, etc. I got a letter from the collection company apologizing and saying I wouldn’t hear from them again. The third company is what haunts me today. I made the initial large payment to secure the settlement and from their, they directly deducted from my checking account monthly payments. Nearing the end of the agreement, I wished to speed up payback and increased the monthly payment. When I made my last payment, I called to tell them to stop deducting from my account, as it was paid per our agreement. Eight to 12 months later, I find that they have sold the account to another company. I called the company which I had made the agreements and payments to and was told by 3 different employees that because they had sold my account, they had no information that they could give to me. Today (4 years after setting up the agreement) , I was served papers stating that this current collection company is taking me to court for the entire amount initally owed. Now, I have documents (the check that was initially given to start the settlement agreement and bank records from the deductions this company made. I also made notes about phone calls to this company, persons spoke to and dates). However, the settlement agreement was done verbally over the phone and I never received anything in writing, nor do I have a payoff letter, which I had requested and never received. I am preparing a letter and copies of documents to send to the county court where this was filed. Do you have ANY other advice as to what I can do to FINALLY clear this up. This has haunted me and caused me an enourmous amount of stress and hardship. I did everything in my ability to make good on this debt. I am very frustrated and concerned. Any advice you could give would greatly be appreciated.
Thank you for your time,
Heather
July 11th, 2008 at 1:20 pm
I have to take issue with Steve “The Debt Man” B. As long as you have considerable debt you need to know that your score will go up very little if you pay one debt. I understand we are talking about more debt than credit here, and delinquency. (For Imwilker - they run the world. You are hard to understand. You paid about $9,000.00 in 20 yrs? $500/yr? I can’t have that right. That would be real bad. That’s what it looks like.You are still at an amount where it is to their advantage to sue you, as they get costs, attorney fees, etc. some credit cards just have a certain amt where they won’t talk to you. Keep paying and someone will talk to you at their set amount, probably $1500.00 to $1,000. I bet they’ll talk to a lawyer. They are ass%oles but they don’t owe you any kindness.) Personally I hate GE Money Bank. They like to pull fast ones. Now, It’s true that a good portion of your score is how much you owe, but just as importantly to your score, the more you owe on more than one acct. the points will go down. As important and especially true for your points is whether you have a poor “debt to credit ratio” which means that you have more debt than you have available credit to borrow (usually on a credit card.) They even have a standard where they look to see if you have $10,000.00 on any card which is available for your use. Don’t expect to see a big point rise if these other things exist on your report.Also, negative remarks can remain for at least 5 and up to 8 yrs. I just had a case where I worked to get rid of the remarks. It’s true that they don’t have a big effect on your points, but you can have negative remarks by a rotten credit card company for losing your temper with them on one phone call. I’ve seen it too much. They put that you are disputing them, and the way they word it translates into making you look like a troublemaker. Nothing on a credit report stays for close to 2 years. I wish that were true for my clients’ sake. Not even close. But depending on your state many of those who are entitled to see your report may not be able to see the comments. If you have strong information in your favor where a negative remark is on your reports than use your right to comment (100 words) on why that shouldn’t be weighed against you. Nothing stays for less than 5 yrs, and that’s only a few smaller things. Most everything stays at least 8 but more likely 10, bankruptcy is now 12 yrs. This AFTER it’s all paid. You may be debt free in a few years but your credit report information tells whoever looks at it what your situation was for the last ten yrs. So don’t be looking to buy that house as soon as the debt is paid. The best idea is to search for your state’s rules to see what stays and for how long, or let a lawyer work for you. We have our ways to get them to talk
I just yesterday used comments on the 3 reports to say the credit card company caused a lot of the problems & I explained it. Also yesterday I finally got the right person who had some kindness for a permanently sick client. They settled for 35% I was happy, but I always want a better rate 
Check your state law and the Federal Fair Debt Collection Act. It’s all on Google. Ok I see a question. Sorry for writing so long. If you tell the credit cards to go jump they will sue and get a judgment. If you are working they will garnish your wages, future employers, landlords, mortgage cos, trying to make big purchases (I’m thinking new furniture) and others may all turn you down. That’s just a brief overview. It’s worse than that. In IL. once there is a judgment they can charge only 9%,so if they are charging a lot more than that then in very unique circumstances you may want to pay the judgment after they sue. I’ve rarely done that. You have no defense so don’t pay to go to court. Maite has a great point. I should have noticed it much earlier. It sounds like many of you have really high debt and bankruptcy is the answer. It isn’t looked at as a terrible thing like it use to be. The economy is terrible. People are losing long term jobs, people have huge medical debts. People looking at your reports don’t judge as much when they see a bankruptcy (BK) - not because I’m a lawyer - but with such high debt you’ll probably come out ahead if you go to a lawyer who specializes in this. It’s one of my three practice areas. Look for one who only does credit and debt collection work. They can review everything and tell you all your options and what the consequences would be. If you go bankrupt you will get tons of credit card offers, offers to buy cars and other big items. DON’T DO IT!! They give you very bad deals, even if it’s hidden well. Hope I helped a little. I’m just passing through. Good Luck All. Dawn
August 4th, 2008 at 9:37 am
Sir, I am a credit card defaulter. I changed my address and likelihood of bank finding me is almost zero. But I feel guilty to do this and want to settle my account with bank, However, i am not in a condition to pay the full amount, but would like to get my name written off from bank’s defaulter list. How do I settle my account with bank? what kind of rebate i can expect? Is there any agency to help me out in this?
August 7th, 2008 at 9:38 pm
Thanks for your question Ashok, we’ll answer it soon!