If you're a consumer facing mounting debts, credit card debt settlements can be a great help. Settling a credit card debt means you and the lender agree to new terms, allowing you to eliminate the debt by paying off a portion of it. These settlements are not without their downsides, so take care. Talk to a nonprofit credit counselor or a qualified attorney if you need advice about your debt problems.
Review the Situation
Most credit cards are unsecured forms of credit, meaning the creditor takes no collateral or security interest to protect itself from an unpaid debt. Always review the terms of your credit agreement so you know exactly what the agreement requires and what the terms are. Then review your financial situation, including your income and total debt obligations. You will be in a much better position to negotiate if you know what you can and can't pay before you start settlement talks.
Open Negotiation
You and your credit card company can enter into any agreement you choose, as long as you do not break any laws. You can negotiate any settlement terms you like even if they include terms that are not included in the original agreement. For example, you can agree to pay off a $5,000 debt for a $2,500 lump sum payment. You can also agree to pay off a debt in installments or even get the credit card company to completely forgive the debt.
Credit Scores
Your credit score is a number that represents how reliable a debtor you are. When you settle a credit card debt, credit card companies will typically report this settlement to the credit reporting bureaus that create the credit scores. A settlement negatively impacts your credit score even though you no longer owe the money. However, you can negotiate what the credit card company reports. Try to get the credit card company to agree to not report a settlement and instead mark the debt as paid, not settled.
Beware Debt Settlement Scams
Some organizations offer themselves up as debt settlement experts that can help consumers get out of their debt problems. While there are credit counseling organizations that can offer legitimate help, many of these organizations are not trustworthy. The Federal Trade Commission recommends that consumers chose an organization that is part of a university, a credit bureau or another nonprofit organization. Reputable companies and organizations will be able to offer free educational materials and can provide their fees up front and in writing.
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