There have been many reports in the news lately that credit card companies are willing to settle 35%-50% of the balances owed.
I agree with these reports, as I have talked to many clients recently about their own debt settlement successes. Many of them have indeed been able to settle for as little as 35% of the outstanding balance, and in some cases even less. In some occasions, the credit card companies are also willing to upgrade the payment history to that credit report gold standard “paid as agreed”.
In the Washington Post article, the writer speculates on the reason the credit card companies are willing to settle: better to get something rather than nothing, and this is my belief as well. Despite the fact credit card debt plunged 10% in July 2009, the banks realize that the unemployment rate will most likely not be easing anytime soon – people are more likely to be spending what money they have on food and rent, not credit card debt.
So how do YOU, struggling with excessive credit card debt, settle with the credit card companies? Here is the basic strategy:
- Do NOT use a debt settlement/negotiation/consolidation company. Period.
- Unfortunately, you must be behind in your bills before you can get the credit card companies to start working with you. Are you caught up in your credit card bills? Stop paying them.
- When you are at least 60 days behind in paying your bills, pick up the telephone and call your credit card company.
- Ask for customer service.
- Tell the rep you are unable to pay your credit card debt. They may immediately offer you a low interest rate of 2-3% on your credit card balance, payable over 3-5 years.
- Even with this drastic reduction in credit card interest rates, insist on reducing the balance of the card, and get them to waive all future fees. Many companies are offering 35-50% of the current balance payable over 3-5 years.
- If you have cash to offer as a lump sum settlement, you will get the biggest reduction in the principal amount of the loan. For example, if you have cash, they might be willing to take 35% of the balance on your account. If you are making payments, you may only get your balance reduced to 50% of the current amount.
- One more advantage of settling with cash – you may be able to get the credit card companies to restore your credit rating to “paid as agreed”. If you don’t get them to agree to this, though, don’t let this be a deal-breaker. Ask yourself what the hit to your credit is worth vs. the savings you are receiving. After all, if your $24,000 debt gets reduced to $9000, is a $15,000 savings worth having a “debt settled for less than owed” on your credit report?
As pointed out in the last step, unless you get the credit card company to restore your rating to “paid as agreed”, by doing a settlement, your credit WILL take a hit. However, if you are struggling under a mountain of debt, it may be worth it to you.
Don’t be afraid to try calling the credit card companies. They are training their customer service reps as we speak to handle settlements. Just be sure to get them to not only lower principal, but waive fees and interest as part of the settlement.
Have you had success settling with the credit card companies on your own? Tell us about it by leaving a comment!
No related posts.
I used a debt settlement company and they did wonders for me. I dont understand why everyone thinks they’re bad.
They are not bad but you can do the same thing yourself and save a lot more money. All you have to do is save the same amount that you would have paid the settlement company and then after a few months you can start negotiating with your creditors. Also, you can always send a letter to the creditors requesting that they not call and harras you; and that all communications should be carried out via mail.
What if the cc company has sold the debt? Can you still contact them to settle?
No – if the original creditor has sold the debt – you’ll have to work with the collection agency. But you can probably settle for even less with the collection company – even 10% of the balance or less.
How do you get a collection agency to settle for as low as 10% of the balance?
Also, not all collection agencies buy their debt, rather collect on a contingency.
Thanks
Hello Kristy,
Great site and great article. It’s funny that NOW the credit card companies are willing to be more “understanding” and work with their customers. Do you think it is perhaps that all of the press and upcoming legislation in Congress is forcing to finally play nice?
Anyways, I thought my subscribers to my blog would enjoy this article and your site. I posted a link to you on my blog…here it is:
Thanks and keep up the good work!
Mark
I have tried several times to get chase to consolidate or lower my interest rate and they refused each time. I have a young child and with these new expenses it has been hard to bring it down please help.
I called cc company to do something with my account. They refused to. Is it because I am current? Do I need to fall behind at least 2 months before they will work with me. I dont have cash to get them to lower balance, but anything would help. Will this work if I fall behind?
Richard: Yes, it’s probably because you are in good standing.
I love how people always say, “you can do it on your own without paying a company to do so”. You can act as your own attorney in a murder trial, you can operate on your own heart if you really want to, you can build your own house. All of these things you can do on your own, but you would be far better off having an experienced professional do it for you. Knowing your own limitations is priceless. You can hire a debt settlement firm that works on a performance basis to negotiate your debt for you. Therefore you do not pay a fee unless they perform above expectations. These companies know the in’s and out’s of dealing with creditors, they do it everyday and may even have an established relationship.(NOT WHAT YOU KNOW BUT WHO YOU KNOW) Be very careful if the settlement company you are dealing with tries to charge you a 15%-18% fee before successfully completing your settlements. These upfront fees will be taken from your payment each month until paid in full, which will prevent you from saving money quickly to settle your debts. There are legitimate companies out there and if settling debts is new to you, experimenting with this and failing can cause potential lawsuits or other legal action which can create more problems for a consumer than they need. Good luck all.
I tried to obtain a blanket loan to pay off my credit cards. The payoff ranged from 25 to 45%, Except for one they wanted the full principal plus lawyer fee’s. So in my opinion just don’ t pay them. I’m not going to argue with an idiot. James
Good News,
I just got a 40% settlement savings. turned $100K into $60K thanks to my debt settlement company. Those guys are great. And I only had to pay them 40% of the savings that they saved me, plus a $1k set-up fee and a $1K annual fee (although they settled in less than one year).
I was told I will get a 1099 for $40K in income and I am now in the highest tax bracket, so I will owe about $14K in federal and $3.2 in state taxes or about 17.2 in taxes.
In other words, instead of paying $100K, I only have to pay $60 + 16 + 1 + 1 + 17.2 = $95.2K. So those guys saved me $4,200. that is great. I think that they deserve the $18K they earned helping me save my $4,200. Thanks
Fact: What is name of debt settlement company you worked with? Do they have website?
or Anyone know good reputation debt settle companies to recommend a few please… Thanks
Can I still settle with my credit card company’s collection attorney on the balance on by credit card even though I received a summons for a court date? Will they accept a much reduced amount from the original balance. I’ve been unemployed since January 2010 – have made my mortgage payments only, no credit cards payments were made.
If the credit card company accepts a settlement ~ Is it better to close out your account of keep it open?
& You’re saying if they document your account as “paid as agreed” it doesn’t hurt your credit?
I got Chase to cut 30% off my total if I pay it in full (I told them I would get back to them)and I have never missed a payment, however my just lost her job. My question is will this affect my credt if I never missed a payment and can I request they show it as “paid in full” rather than “settled”?