If you're overwhelmed by credit card debt, you may be wondering what your options are for dealing with it. Depending on your situation, you may consider debt management, consolidation or even bankruptcy. If you're behind on your payments, another option is debt settlement, which can reduce what you owe. While you can hire a debt settlement company to negotiate on your behalf, it is possible to settle your credit card debts on your own.
How It Works
Your account must be delinquent at least 30 days. Before you contact your creditors, determine how much you're willing to offer. You must have cash on hand to settle with so don't offer more than you can afford. Depending on your situation, your creditor may be willing to settle for anywhere from 25 to 75 percent of what is owed. Contact your creditor by telephone or in writing with the terms of your offer. If the creditor accepts the offer, request written verification before sending payment. Send payment via money order or wire transfer if possible. Do not give your creditor direct access to your checking account. If the creditor rejects your offer and demands more, be prepared to make a counteroffer.
Advantages
Debt settlement allows you to save money by reducing the total amount of your debt. You also save money in terms of the interest and fees you would normally pay if you were making regular payments to your debt. Negotiating a credit card debt settlement can also put an end to collection efforts, including civil lawsuits. If a creditor sues you for unpaid credit card debt and wins a judgment against you, it can pursue you for wage garnishment or seize your bank account or other assets.
Considerations
Any amount of forgiven debt over $599 may have to be claimed as income on your taxes unless you can demonstrate that you were insolvent at the time of the settlement. Debt settlement also has a negative effect on your credit score, primarily because your account is reported to the credit reporting bureaus as delinquent for an extended period of time.
Warning
If you don't feel comfortable settling your credit card debt, be very careful in contracting the services of a debt settlement company. These companies typically charge substantial fees and they can't guarantee that you will receive the best deal. In addition, there are a number of fraudulent debt settlement companies that exist solely to defraud consumers. Before entering into an agreement with a debt settlement company, check with the Better Business Bureau and the Federal Trade Commission for a record of complaints and/or lawsuits. Never agree to anything without requesting a written contract and beware of any company that asks for a consultation fee or demands payment prior to acting on your behalf.
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