How to Settle Credit Card Debt for a Fraction of What You Owe

If you find yourself facing a mountain of credit card debt, there is a way to eliminate your debt without declaring bankruptcy. If you've fallen behind in your payments and are unable to consolidate your debts, then you might want to consider debt settlement to erase your debt once and for all. Debt settlement allows you to fulfill your obligations to your creditors while paying less than what you actually owe.

Instructions

1

Make a list of all your outstanding debts, including the creditor's name, the account number, and the total balance owed. Only include in the list debts that are past due, as creditors are generally unwilling to settle debts on accounts that are current. How you order the list is up to you, but keep in mind that the more delinquent a debt is, the more likely it is that a creditor will be willing to settle.

2

For each debt on the list, determine what percentage of the debt you are able and willing to pay. Debt settlement requires that you make one lump-sum payment or a short-term payment plan, so base your percentages on what cash you currently have available. Creditors may accept anywhere from 35 to 75 percent of the outstanding balance so you may want to prepare an initial offer as well as a counteroffer in case your first offer is denied.

3

Choose which debt you will attempt to settle first. This may be the one with the highest balance or the one that is most seriously past due. The general rule of debt settlement is that the older a debt is, the lower your offer can be, as creditors are willing to accept any amount as opposed to nothing.

4

For the selected debt, compare the information on your credit report regarding the account to the most recent account statement or collection notice you have. Before you approach a creditor with a settlement offer, you need to make sure you're making the offer to the entity that is legally able to collect on the debt. If your original creditor sold the debt to a collection agent, then you will likely have to deal with the collection agent. If they merely assigned it to a third-party collection agency, then you may be negotiating directly with the original creditor.

5

Once you've verified the owner of the debt, you will need to contact them with the terms of your offer. This can be done via telephone or by writing a proposal letter, outlining the terms of your settlement. Whatever route you choose, it is imperative to keep a record of all contact with the creditor and to request written verification of their acceptance of the settlement and its terms, including the account number, the amount of the settlement, how the payment(s) will be made, and how the debt will be reported to the credit bureau.

6

If your original offer is rejected, then you may make a counteroffer. Once you reach an agreement you will need to decide how to make your payment(s). Choose a method that will create a paper trail, such as a money order, certified check, or Western Union payment. Do not give a creditor direct access to your bank account or debit card information. Keep a copy of your payment history with any other documents relating to the settlement.

7

Continue offering settlements to each of the creditors on your list. If a creditor refuses a settlement offer, simply move on to the next and make another offer to them in the future. As time passes, they may be more willing to accept a settlement if they feel they will have no other opportunity to recover the debt.