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:

1. Do NOT use a debt settlement/negotiation/consolidation company. Period.
2. 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.
3. When you are at least 60 days behind in paying your bills, pick up the telephone and call your credit card company.
4. Ask for customer service.
5. 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.
6. 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.
7. 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.
8. 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!

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