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Credit Card Debt Settlement – How To Do It Yourself


If your credit card debt has been sold or outsourced to a collection company and you want to make a settlement then there are a series of simple steps you can follow to have the best chance of success.

1) Get your paperwork together – You will need a copy of your latest bill from the collection agency. This will tell you exactly how much you owe, including any fees or interest that has been added on by the original bank, and the collection agency.

2) Know what you can afford to pay – The goal when making a settlement is to reduce your total amount of the debt you owe by 30% to 50%. You will have to have this amount all at once, or be able to come up with a specific payment plan. If you choose a payment plan you can never miss a payment or all agreements are off.

3) Call the collection company –
Be aware that the first person you speak to may not be able to arrange a settlement for you. It may require speaking to a manager, or even a different, more helpful collections representative. Just know going into it that it’s an uphill battle, but it can be won. Be calm, patient and firm.

4) Do not tell them you have no intention of paying the debt –
If they make you mad, or you don’t intend to pay until they do agree on a settlement, do not verbally tell the collection company this. It’s know as “a refusal to pay” and it puts you on the shortlist for a lawsuit. If the current collections rep won’t help you, tell them you do intend to pay the debt, but you can’t pay that amount. Keep asking them for a settlement, or for a manager.

5) Once you reach someone reasonable – Work out a plan that you can live with. At the very least you can expect to have all late, over the limit and / or membership fees removed from the total amount of your debt. Start by offering 35% to 40% of what you owe. If they take it, great. If they don’t slowly work up to a number that both you and the collection company can live with. Most likely you can expect to have about 35% knocked off the total. If you are willing to push it, and put off paying the debt a while longer, you may be able to negotiate for better terms.

6) Consider a credit counseling agency – There are a lot of fraudulent credit counseling services out there. If you take the time to do your research, and work with professionals, then they may be able to negotiate a better settlement that you could on your own. Obviously the more you owe, the more this tactic could benefit you. For more information on how to choose a credit counseling agency, you can check out the following articles.

7) Get it in writing – Explain to the collection agency that you will be happy to agree to a settlement for X amount, but that you must have the agreement in writing. If they refuse to do this they are trying to cheat you – pure and simple. Putting things in writing is a standard part of a settlement agreement. Most collection agencies fight the “put it in writing part” because they know that if they can get you to give them money today, and they keep no written record of any “agreement” then it’s just the same as if it never happened, and you still owe the full amount no matter what was said.
So, get it in writing before you make a payment.

8) Keep a careful record of who you speak to – Write down the date, time, name, and operating number of anyone you speak to. You may need to reference it later. If you are having success dealing with a specific person, ask them for a direct line so that you can call them back if you have questions.

9) Once you have the settlement agreement in writing, keep up your end of the bargain.
If you promised to pay on a set schedule, then make sure you do. If you default on the agreement, then you are back to square one and the interest and everything else will be tacked right back on.

10) Get it in writing again – Once you have paid down your debt as agreed, keep calling the collections company back until you reach someone who can send you a letter in writing that says you have paid your debt in full. I cannot tell you how many people have made agreements, paid as they should, forgot about it, and then found themselves in court a year later. What happened in that case is stupid, but simple. The collection company re-sold the part of the debt that they “removed” from your settlement offer. If you never got a letter stating that the debt was paid in full, then you have no proof that it happened as agreed. You can fight it in court of course, but it is so much simpler if you just demand the letter of payment until you get it.

11) Check your credit report –
Once you are finished wrangling with the collection company and have emerged victorious, check all three of your credit reports. (You can do that for free by going to Annual Credit Report.com). Give it two or three months after your settlement before you check. This gives everyone, including the credit bureaus time to update your records.

What are you looking for?

In either of these two cases, your settlement agreement, and your letter of payment-in-full will serve as proof for you. If you do find something incorrect, you can challenge these items on your credit report, send in your evidence, and have the accounts updated correctly so that they do not continue to hurt your credit score.

If this process becomes overwhelming for you at any point, and you feel like you would rather ignore it than move forward, then the very best thing you can do is to seek the services of a qualified credit counseling service. They do this stuff all day long. And they don’t have to take it personally, because to them its a job. To you, it’s your life, it’s your debt, and it’s your family they are harassing with constant calls. Getting help is certainly a better option than allowing the situation to get worse, or cause you further stress.

Have a question for us? Leave a comment below!

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Karen Sweatman
December 30, 2008 @ 7:29 pm

I opted to pull out my 401k early to pay off debt. In doing so I’m losing about half of my retirement money. There are taxes and penalty fees for early withdrawal, not to mention the loss I took in the stock market. Bottom line is if I pay off all that I owe in credit card debt and loans, I will be broke. I had to quit my job to pull out my 401k, so the credit card debt has gone up due to late fees and over limit fees. I want to negotiate a fair amount with the lenders so I can pay them off. Is this a goal I can likely achieve?

February 4, 2009 @ 12:43 pm

Our chapter 7 bankruptcy recently discharged and we reaffirmed the loan on our minivan rather than include it in the bankruptcy since we were current on the payments. The unfortunate part to this is that the loan is for more than the value of the van. We qualified for a loan for a new car that we would have reaffirmed but because of the upside-down value on the old loan, we could not get a car loan for a replacement in a monthly payment that we could afford so we decided to keep what we had.

Now, unfortunately, the van is in need of some serious repairs that we would have a hard time paying the large sum of money. We just don’t have it yet nor is buying a cheap used car an option, again no money saved yet. My dad who has great credit has offered to co-sign a loan for a new (used) car. We don’t want to buy another old, junker of a car to get us through the next couple of years until our credit improves since that is what we already have and it is nickle and diming us to death. I did read on the blog that we should avoid a co-signor at all costs but I am not sure we have any other options without paying exhorbitant rates on a new (or newer used) car loan.

One thing about our credit is that we are and have continued to be current on our mortgage, utilities, and both car payments even prior to the bankruptcy so we continue to have record of current payments. Once we have a bit of money saved for the fees, we do plan to open secured credit card accounts to help improve our credit score. We only included credit card debt in the filing. Our credit scores range from 590-630 since the bankruptcy.

Thanks for the help.
Really Hoping For a New Car

February 5, 2009 @ 5:01 pm

Dear Mr. Credit Card,
I am in credit card debt, at least 10,000, I had really good credit ( a year ago)
due to financial changes( layoff from old job took a job paying less!!!) I am having a hard time trying to make ends meet, trying to make at least minimum payments
just to try to get my credit score back up so I can try to get a loan to consolidate.
I feel like it is just a vicious circle. Do you have any advice?
Drowning in debt

February 19, 2009 @ 12:58 am

We owe $4000.00 (Chase) on one card,$2500.00 on (Cabelas) another. Would a credit card company accept a full one time payment and still knock some money off the top of actual balances, mind you were not late, up-to-date on time payments, ONE overtures, but were getting no where while just paying interest. I’m just trying to pay it off and possibly save some money, I’m trying to use the settlement rule,no collection agency involved, thanks a million Bruce

Linda B
January 28, 2010 @ 11:05 am

When I began negotiating a settlement with my credit card company they told me that once the settlement was final they would have to issue me a 1099C showing I had a savings greather than $600.00. My tax consultant said this means I would be taxed at the end of the year, that savings would be considered income. Is receiving the 1099C something I could negotiate with the credit card company, or is it true the credit card company has no option but to provide me with one?

September 23, 2010 @ 9:57 am

I had a settlement agreement with Credit Card Services and had to make 4 payments, I would call every month and set up the payments. On the next to last payment, I was under the impression that we also set up the final payment. It was due on the Sept. 19th, which was a Sunday. On Tuesday,Sept. 21st, I noted that it had not been taken out of my accout. I called Credit Card Services and they said that I was in default of the settlement agreement and they were going to pursue collect effords. I explained that I was under the impression that it was already set up and to just take the money out of my account, they had my checking account no.. They said that they could not do that, but would order a call review to see if the error was on their part. They told me to call back in 5 days and they would let me know what they have found out. I feel like they are trying to screw me over. I have made all the other payments already and this was my last 4300.00 payment. I have now borrowed money from my relatives. 401K, and am completly tapped out of any funds. Any suggestions?

April 7, 2011 @ 5:15 pm

How can you tell if the lawyer coming after you for a credit card debt is representing the credit card company/bank or bought the debt and is a debt collector?

June 9, 2011 @ 4:31 pm

If I negotiate a settlement with the credit card company, will they automatically reduce my limit, increase my interest rate and/or close my accout?

July 25, 2019 @ 6:09 pm

I had a College Credit Card from Wellsfargo with a limit of $700. I started off good always making my payments on time until a family matter occurred and I had to move to New York. I have not been able to make a payment for months now and last I checked my past due amount was $1000. The account is now closed but I wanted to know if I can still pay back the card and start fresh with wellsfargo? It is to the point where I am not even able to have a debit card with them because of the closed account


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