A credit card reduction process is better known as debt settlement. Debt settlement allows reduction of credit card debt by paying off individual cards for less than the full balance. Savings are sometimes impressive, ranging from 20 to 70 percent of the balance, according to SmartMoney. The strategy is endorsed by the Federal Trade Commission as an alternative to bankruptcy, but there is no guarantee of success, and some people are sued by credit card companies while attempting to settle.
Considerations
Debt settlement is usually managed in one of two ways -- by self-management or through a for-profit debt settlement firm. The Federal Trade Commission encourages people to manage their own debt settlement. Some debt settlement firms provide good services; but on its website in 2011, the FTC notes that many debt settlement firms offer poor customer service or engage in shady business practices. Self-directed debt management gives people complete control over the process.
Process
Settlement is possible only on past-due credit card accounts, as the credit card company has no reason to settle accounts paid on time. Settlement offers are generally available after the account is about three months past due, and the card company realizes that the customer cannot -- or will not -- resume paying on the account as agreed. Collection efforts become intense, with multiple phone calls and letters.
No Guarantees
Receiving a settlement offer is often as simple as calling the credit card company and asking. Calls are usually transferred to a special internal collections department for negotiations with a trained settlement specialist. Sometimes settlement offers are generated by computer and mailed to the credit card holder as a letter -- without the card holder having made a request. Other settlements aren't as simple. Credit card companies are not obligated to offer settlements, and they have the right to set their own terms, such as full payment of the offer made within 30 days. That may not work for some people needing to pay in installments.
Legal Action
Some people -- and debt settlement firms -- hold out during the negotiations while waiting for a more attractive offer from the card company. However, such offers may not materialize, with the card company choosing to file a lawsuit instead. In the lawsuit, the credit card company alleges that the account holder failed to pay on the account as promised. The suit demands full payment of the balance owed plus court costs and attorney fees as a result of the breach of contract. Debt lawsuits are very serious and could lead to a monetary judgment in court and, eventually, garnishment of bank accounts and wages.
Hiring an Attorney
The threat of a lawsuit is the biggest reason people should manage their own debt settlement. For-profit firms may suggest that negotiations with various creditors are progressing well, lulling the credit card holder into a false sense of confidence. An experienced consumer affairs attorney also can handle debt settlement and can offer sound legal advice during the process. Many settlements are reached after lawsuits are filed, and the attorney can handle the situation if it comes to that.
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