How to Offer a Settlement on a Charged-Off Credit Card

Consumers that find themselves drowning in a growing pile of credit card balances and interest fees may look to offer a settlement on outstanding credit card balances. In a settlement, a debtor proposes to permanently close the account by paying less than what is owed. It is not a clean slate solution, as you still owe the remainder of the balance -- it is more of an agreement between the debtor and creditor to move on.

Instructions

1

Conduct a financial inventory. Before offering settlements, you want to understand how much you owe and what you have to work with in an effort to settle these debts. Get out the most recent statement for each credit account you wish to propose a settlement and list the outstanding balances. Then, review your current assets, bank account balances and expected future cash flow.

2

Construct your settlement offers. Based on your outstanding debt, number of accounts and available cash, come up with how much you would be willing to offer the creditor to settle the account in full. While you do not want to go too high, offers that are too low will be not be considered. At a minimum, you will want to make sure you have the cash to cover at least 40 to 60 percent of your outstanding balances.

3

Write a letter to your creditors. For each creditor you wish to settle, send a certified formal letter indicating your interest to settle the account as well as your offer. This is the negotiation stage, so perhaps you may want to start a little lower and see what type of response you get. Once the letter has been delivered, wait for written response from the creditor. If the creditor accepts your offer in writing, immediately transmit payment.

4

Stop paying your monthly bills. As long as your account is current, even if you are only paying the minimum payment, the creditor will be disinterested in simply accepting a settlement and charging off the rest. Provided the previous step fails, your creditor will be more interested in settling once you are not paying. This is a tough step to take as it comes with stress, and will wreak havoc on your credit score.

5

Force a settlement offer. After three or four months of not paying your minimum payments and not returning your calls, your creditor may be incline to reach out to you with a settlement offer. This is another opportunity to negotiate the amount down, but if the amount is within your budgeted range, strongly consider accepting the offer to avoid additional financial and legal complications. Once the offer is extended in writing, formally send in a written response of your acceptance along with payment.

6

Monitor your credit report. During this process, particularly if you are not making minimum payments, your credit score will suffer. Review your credit report before, during and, especially after, the settlement process is complete. You want to verify the completion of the process, where the account may read something like "paid as agreed" or "legally paid for less than full amount."