Credit Card Debt Negotiation or Debt Settlement

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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.

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26 Responses to “Credit Card Debt Negotiation or Debt Settlement”

  1. Steve “The Debt Man” B Says:

    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 ;)

  2. lmwilker Says:

    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.

  3. Tammy Says:

    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

  4. Bridget Says:

    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

  5. Shelley soi Says:

    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?

  6. Maite Diaz Says:

    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.

  7. Heather Says:

    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

  8. Dawn Durante Says:

    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

  9. Ashok Says:

    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?

  10. Jenna Says:

    Thanks for your question Ashok, we’ll answer it soon!

  11. Jennifer Says:

    I have a cc from 10 years ago that my late ex husband opened in my name and charged it up and now the cc company has said that they were gonna take $600 a month out of my check until the card is paid off. Is this correct?

  12. akshay Says:

    hi, i was using a standard chartered credit card in april 2007 which had 50000 $ limit, i had used the card to a limit of 57000, the bank did not sent me bills for first 3 monhs, but after that one fine day sudenly i got a call saying me 3000 $ as minimum due payment as they had rounded up my outstandin @60000$, this payments of 3000$ went on for 4 months after that i was out of my job and all this continued for 4 months and because i was out of salary i dint paid the minimum amount, they called me last month and said me that i have to pay them 90000$, which is impossible for me to pay, is there any way for me to compromise on principal amount as its very tough to pay all this amount

  13. Dan Says:

    Debt negotiation which leads to debt settlements is a process to eliminate large amounts of debt either in one lump sum or a set of installments. Debt negotiation cannot be started at least until account has fallen 90 days delinquent, if account is this past due then your credit has taken a hit. It is not ethical or legal to suggest to anyone to stop making their payments to their creditors.

    Joining a debt settlement program will cost money, my best suggestion is if you are going to join a debt settlement program join one that only charges fees on performance, meaning a company that only has one fee. A fee for negotiated settlements only.

    DYI or do it yourself is not as hard as the author suggests. I have been negotiating debt for a long time, if you want to negotiate your own debt you need t o study the following:

    1. Study Fair Debt Collection Practices Act
    2. Learn a base of commonly debt settlement terms, for example charge off, litigation, reaging, etc… You can find this vocabulary n most debt settlement sites or blogs.
    3. You need tough skin. When speaking on the telephone with collectors you must be made of steel and always be two steps ahead of them. Never cave in, sound sure of yourself and negotiate wisely. I do agree with the author about debt negotiators, their experience negotiating every day. I did not know how to negotiate unsecured debt at first, I started one account at a time and so can you.

  14. Dave Says:

    If I take settlement with a credit card co. and they give me an r5 rating or “settled” rating how long will it take me to get good credit again and how long will it stay on the credit report. Can you negotiate the rating as well and if so what would be better.

  15. Foxie Says:

    Hello
    I am going to make this as short as possible. I became disabled in 2003, consequently my incoming monies were reduced to about 62% of what I was making. This year, I finally decided to go with a credited nonprofit credit consolidation company and have been very happy with their work on reduction of interest rates and the regular payment schedule. Prior to disability I was able to deal proficiently with creditors ,or anyone for that matter, but since, I am extremely emotional and feel overwhelmed everytime I attempt to work with someone concerning my financial issues. (It has become extremely stressful as well as it takes a long time for me to recover, physically)so I felt by going this route, I owe less then 10 grand, I was being responsible about my dept plus kept from going into bankruptcy, which my mother, “the banker”, always told me to avoid at all costs.

    I was informed one company, Dell Financial, did not work with credit counselng companies in any venue. I was shocked so of course I needed to research if perhaps I had gone with the wrong credit company. Unfortunately the information was correct and when I called Dell, they confirmed it as well. The representative I spoke to, told me to get my account current and call back, and usually they did work with customers on reducing interest. (I have to admit, this is the first person, in customer service, with Dell, who had ever really helped me in any capacity and I thanked him profusely) A couple of weeks later, I called back to explain my situation of disability, a decrease in pay, placing all my credit into a credit counseling program. I requested a reduction of interest, and was told they could reduce my aprx 25% rate by 3%! I stated that why could this not be reduced more, considering my situation, and was told that this was decided by their interest adjuster group. I then inquired if I could speak to such a person, she said no, and that it would do no good. I inquired as to what their criteria was in order to come to a conclusion of 3%. She didn’t know but was sure the credit report was part of it. I stated well if I had great credit, I would not be working with a ccs at this point, and was there anything I could do to better my chances of getting a higher reduction? Her reply was It would be better if I called one of the credit report agencies. I was flabbergasted and said so you are saying your company has no control over your interest rate, they do? That doesn’t even make sense that you are referring me to a credit report company instead of someone within your own company. lol. So I thanked her for her help and asked to speak to her supervisor. Of course, she said the supervisor would only tell me what she did.

    I fully explained my disability situation with the supervisor and what I was doing so that I could pay off my debts. The supervisor said he would put notes into my file and send it onto the adjusters to have them reevaluate my account and then mail me their decision as to how much they could reduce my interest rate. I did make a point of saying to him, look, I am making an attempt to pay my debts. Because I have tons of medical expertise, on paper, stating I am in no condition to work, and in fact they are now labeling me now as “perm disabled”. I think bankruptcy would be easier for me to obtain then many folks. But no, here I am calling you trying to negotiate a lower interest rate so I can pay off my dept to you. It would be to your benefit to work with me. This was all done politely and as professionally as I could do so. I was quite proud of myself for making it through the whole phone call without crying or getting upset simply because of the meds I am on, as well as the conditions I have.

    Well, 2 weeks later I got the lettet stating they could not reduce my interest rate,,,at all! Not even the 3% I guess was possible. I feel overwhelmed. I did call a nearby local ccs place to ask a rep how else could I approach Dell? I am at a loss. He suggested I might try to get a hardship deal. I plan on trying this once I get my nerve up again..thats just it, it takes a lot of energy for me to deal with this stuff. I wish I had a good friend who could step in for me and help me but at the same time, I am proud of myself for making the attempt. It was a difficult decsion for me to relinguish control of my fiances to the credit counseling company, big time. I’ve always been an overachiever and I wish I had done so earlier, but for now I am just trying to take it one day at a time. It took me a couple of months to get over the emotions of doing so.

    I feel overwhelmed. Can you think of anything else I should try? Or is there someone or some group that might help me on this one company? I have thought of csontacting our consumer protection group in our state..but I don’t really know if this is something they would help on. Suggestions highly welcomed.

    Thank you

  16. Joseph Says:

    If you have trouble dealing with creditors then do what I do and only communicate through letters. If you only work through return reciept letters then if they do sue you then you have proof you have been dealing with them or attempting to deal with them. The worse thing I believe you can do is stick your head in the sand and expect the situation to go away. if you get sued do not admit you owe any monies at anytime because it is an automatic judgement and you will never get a good deal. If creditors have the burden of proof then they are more likely to work with you.

  17. Rabi H Says:

    Hi.
    I have two account with GE Money (Furniture: Bed and Flat Screen).
    As per today I have $3000 (bed) and $2800 (Flat screen) balances , my brother agree to payoff $5000 for me. I want GE money to lower the total balance with $5000 so I can Pay it off .
    How can I do that ?

  18. Tim McCarthy Says:

    Great article! By the way, I recently read in the book Bankruptcy 301 (http://www.bankruptcy301.com) that some credit cards will settle your debt for 60% payable over 60 months and not requiring you to pay all of it within a month or 90 days. I called up all of my credit card companies and found out that Citibank is doing this out of kindness to their customers during this difficult time. I took them up on this great offer–what a relief I didn’t have to pony up the cash right away. Better to negotiate directly with the companies–by the time you factor in fees, debt settlement companies seem to be a rip-off.

    –Tim

  19. Faye Says:

    Anyone deal with Bank of America? Called them today. They indicated that they no longer will negotiate principal reductions. You either, according to them, “qualify” for a 5-year program through their “Proactive Account Unit” or you don’t. If you have too much debt (I threw some numbers at them to see what they would consider), you do not qualify and they will not tell you what their criteria is either. They certainly seem to lean towards negotiating with a debt consolidator/management company but not a debt settlement company because, like I said, they stopped accepting debt reduction. No answers as to why using an outside source is more effective than doing it yourself. The little I got out of that question was the assurance they get that the monthly payment is somehow more apt to be consistently paid through a debt consolidation company versus dealing direct.

  20. Gilly Says:

    I’ve dealt with Bof A and several others. The only way I could make headway with any of them was to go into default and negotiate over time. My BofA accts took anywhere between 6-10 mths to settle, and at anywhere from 14-20% of the new balances as they accrued with usury interest and fees. By the way, when I first began trying to work with BofA, it took me 8 people, multiple phone calls, xfers, getting hung up on before I reached a so called analyst who finally suggested I call a debt settlement company to settle at 60-70%. Do it yourself, be patient, and don’t pay anyone fees for this-they’ll only guarantee you results that are less effective than what you can do for yourself. Remember, you’re gonna need the extra cash to deal with the 1099′s on the back-end(for taxes)that you’ll receive later–their ae different options in dealing with this as well depending on your circumstance. Hope this helps you!

  21. lynn Says:

    i spoke with an attorney about filing bankrupcy –7. he suggested trying to settle first and talked about asking for a 1099 waiver from cc companies/collection agencies. has anybody heard of this and if so anyone successful?

  22. Michelle Says:

    I have been able to work out a debt repayment program at 0% with every one of my credit cards until they are paid off-American Express, Citibank and Household Credit. I also have worked out my mortgage under the Obama plan. The hold out is US Bank-which I owe $4000. The interest rate if 29.9% They refuse to lower the interest rate or settle. I finally got them to at least close the credit card.

    US Bank claims that I do not qualify for their hardship program because my income is not HIGH enough? What? If my income was high enough, I would not be in this situation. They forced me to talk to a debt counseling company-which I told them was ludicrious since I have got 0% interest on all of my credit cards and a nice lower rate on my mortgage. I went through the exercise and the dumb credit counselor told me to either A: file for bankruptcy B: Sell everything I own and just pay off those credit cards that I got 0% on now C: she would recommend to US Bank they give me 7% interest and a $135 dollar a month payment-of which 24 dollars goes to the credit counselor. She also tried to convince me that I should close my overdraft protection on my checking account which no BALANCE. WHo are these people?

    This is stupid. US Bank by the way is where my husband and I have three personal checking accounts.
    And between our businesses we have 5 business checking accounts. And my business that I own has a large line of credit with them.

    What gives with US Bank-I have already threatend to take every single one of our accounts including the credit card. This makes 10 accounts that I have with them.

  23. debbie Says:

    Credit scores mean nothing if you can barely make your payments. There is NO WAY OUT for a long time and none of the cresit card company’s will help or work with us?! I have held a fantastic score for YEARS! I’m trading it in for peace of mind!

  24. kevin Says:

    Credit card debt is always unsecured debt as opposed to a secured debt like a housing loan or a car loan wherby the bank owns it until the full payment, if you have very high credit card debt and low income it best not to pay it, and worry about it if credit companies ask tell them you are not in a position to make payment as you are strugling with everyday expenditures cc companies can absolutely do nothing to you always remember that and don’t live in fear of action its unsecured debt and the banks are taking a risc legally even courts will not favor cc companies, sure your credit score will go down and you won’t get a loan, but you won’t have to worry about it any more moreover in a couple of years bank will settel for about 20 % of orignal amount and you can start building your credit history again.

  25. Sandy T. Says:

    Hi,
    In Oct. 2006 I settled with all of my creditor’s and thought that everything was taken care of but almost 4 yrs later I received two bills from Capital One saying I owe them money as the accounts were charged off. My problem is that I did not receive a final settlement letter from them but I do have proof of payments which were processed electronically.
    I am unemployed and I really need advice on how to handle this matter and how can I get Cap1 to correct their statement on my credit reports. The credit agencies asked for verification and my reports were updated to “verified” and the bills have neen re-aged to 2010.

  26. mary frances Says:

    my sons owes Capital One appx 2500 and he is out of work. he has no real property and has no jib as he was laid off when the economy failed. Capital One sent a man here who did not ask my son for ID and he was peeking in our windows before my son answered the door and was served to appear in court may 15 2012. what will happen if he does not appear? He cannot pay, he does own an old beat up car. can the take his car and penalize him if he does not show up? if he shows up must he sign anything with Capital One? Can they seize his car? A judgement means nothing in reality, I found that out when the state of fl refused to enforce alimony and child support on my ex husband, if a divorced woman cannot get enforcement of child support and alimony why do banks like Capital One have the right to collect a dime from anyone? They are the worst crooks who hired physicists to do the math to begin with so we’d all fail!

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