Enroll In A Debt Settlement Plan
This isnt the easiest process and it will hurt your credit scores, but it could be an alternative to bankruptcy if your situation warrants it.; A debt settlement plan over a longer period of time will require you to negotiate an agreement with your creditors to pay back some of what you owe, either in installments or a lump sum. In general, a reasonable expectation is settling your debt for 50% less of what you owe if your account is five or more months late. For some, this could mean it could take a couple of years to settle all your debts.
Keep in mind that some credit card issuers are a little more flexible than others, says Bovee. He explains that in his experience helping people settle their credit card debt, Bank of America and Chase tend to be the easiest to work with. Citi, on the other hand, will probably want a larger settlement than some of the other companies. Discover and AmericanExpress tend to be fairly litigious, meaning they might sue you and take you to court, so its something to consider if youre deciding which bills to pay off or settle first.
How Does Credit Card Settlement Work
The benefits of credit card settlement are clear: You may be able to get out of debt more quickly without the responsibility of the full debt load. However, your credit score will likely drop as a result of debt settlement, and you may have tax consequences down the line. If you settle a $15,000 debt for $10,000, for instance, you may be taxed on that $5,000 difference.
Try To Settle Before Your Account Goes To Collections
If you’re having trouble paying down your debt, it’s best to be proactive. ;You’ll likely have more success with debt negotiation if you try to settle your debt before it goes to collections.
However, there is no way to know how a credit card company will react once you make the call. ;Some will be willing to work with you, and some will not make any effort at all.
You should be careful about how much you tell them when negotiating your debt. ;If you lost your job or have had a family emergency, they may be more willing to work with you for a while. ;But if you tell them you just can’t afford to pay because you have too much debt, they may be less likely to help out.
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Check And Update Your Credit Reports
Check all three credit reports to make sure that it reflects that the account has been settled and now has a zero balance. Do note that this change can take anywhere from 30-180 days to reflect on your credit report and insure there is accurate credit reporting on your debts.
Settling a debt with a credit card company can be frustrating and time-consuming. Also, you may not be successful and could end up in more debt. It is always best to consult with a legal professional at a debt settlement law firm that concentrates on debt resolution, debt settlement and debt relief. Attorneys who concentrate in this area know the law, know how to deal with your creditors and know how to make sure your debts are settled properly. You can settle your debts on your own but keep in mind these tips from the experts who do so every day, so debt settlement goes right and you can get you the settlements you deserve.
With The Right Knowledge You Can Change Negotiate With Your Credit Card Company
As a credit card user, it might be intimidating to contact your credit card company and negotiate better terms. However, with the right knowledge, you may be able to obtain a lower interest rate or a favorable long term repayment plan to resolve credit card debt.
Keep in mind that you may have an improved chance of negotiating in your favor when you have a better handle on your financial situation: that means a low debt-to-income ratio, being current on all of your accounts, low credit utilization, and no outstanding delinquenciesamong other financial factors.
If you cant negotiate with your credit card company, you can shop and compare to see if other terms at other companies are better. And if you cant find better terms, practice responsible spending because there are no shortcuts in the world of financial responsibility.
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How To Get Out Of Credit Card Debt Without Paying Everything You Owe
Debt is tough. Sometimes it is hard to imagine getting out of it, and you can feel like your back is against the wall. One idea, that sounds good in theory, is to somehow get out of debt without paying it all off. Of course, this is an appealing strategy, but pursuing it can cause more harm than good. Here are the ways you can technically pay off debt without paying everything you owe, along with important reasons to consider other options instead.
In this article, we are talking specifically about credit card debt. There are other types of debt that have forgiveness options, such as student loans. However, there are not typically formal forgiveness options through major credit card companies. When you use your credit cards, creditors have the full expectation that you will repay the money. After long periods of missed payments, your creditors may lower these expectations and charge-off the accounts and send them to collections. After this period, there may be opportunities to pursue alternative payment arrangements for less than what you owe. However, these always accompany damage to your credit score.
Debt settlement is not cheap, either. You can expect to pay fees between 15 and 25 percent of the enrolled debt. On top of that, if your debt is forgiven then the forgiven amount is treated as taxable income!
What about DIY settlement?
Downsides Of Diy Debt Settlement
Regardless of whether you take on the task yourself or reach out to a debt settlement company, you may face a tax burden if you do reach a settlement. If at least $600 in debt is forgiven, youll likely pay income taxes on the forgiven amount.
Another downside to either DIY or professional debt settlement is that your credit score will take a dive, and the settlement will remain on your credit report for seven years.
And dont forget that, if you decide to DIY, youll be on your own. In other words, you wont have a debt settlement professional or anyone else to negotiate on your behalf.
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Types Of Credit Card Debt Settlements
To start the process off, just focus on getting your interest rate lower because thats really the doozy, Dunn says. Start there then move on to the next part of the process, which is negotiating settlements.
A settlement is an agreement between you and your card issuer to settle for less than the full amount owed on your credit card.;
The best one for you will depend on your financial situation. Account for what money you can get access to and what offers you can actually make, Dunn says.
Heres a quick overview of three types of settlements that card issuers are likely to agree to:;
If you have room in your budget to offer one big payment, Black and Dunn recommend using the lump sum technique. This type of settlement could save you the most money in the long run.;
For example, you could ask for a lump sum payment of $2,000 to settle a $3,000 credit card bill. If the card issuer agrees to your offer, the remaining balance is forgiven.
With this type of agreement, the card issuer is willing to work with you to make it easier to manage your credit card debt.
The issuer may reduce your minimum payment or interest rate on a card or multiple cards, and potentially waive past late fees on your account. You can also ask for an alternative repayment schedule.;
Know Your Negotiation Options
Before negotiating with a credit card company on your own, you should get familiar with the types of settlement options that are typically available to consumers. If the credit card company is willing to entertain the idea of a debt settlement, then the odds are high that they will want to make one of the following arrangements.
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How To Negotiate A Credit Card Balance That Won’t Result In A
Negotiating your credit card debt for less than you owe can help get you out of financial difficulties, but it will also lower your credit score. Even when card issuers agree to accept less than the full amount you owe as a payoff, most will still report the number of days the account was delinquent. Although it will put a black mark on your credit report for several years, negotiating a smaller lump sum payoff may be less damaging to your credit standing in the long run.
Benefits Of Diy Debt Settlement
The primary benefits of pursuing a do-it-yourself debt settlement revolve around cost. A DIY settlement avoids the fees you might pay to a professional debt settlement company.
A debt settlement company may charge fees totaling 15% to 25% of the settled amount. So, if youre settling a $10,000 debt for $5,000, you could be hit with a fee as high as $1,250 or even more.
If you choose to negotiate a DIY debt settlement, you dont relinquish your personal control over the timing of the process.
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What Exactly Should You Say To Your Credit Card Company
If the thought of negotiation with your credit card company is intimidating, dont worry there are scripts you can use for reference. If you know what to say ahead of time, youre more likely to be persuasive and come to an agreement.
Ask a customer service representative to connect you to the department that oversees debt settlement or hardship.;
If you want a lower interest rate, Dunn suggests saying something along the lines of the example below.
Hello, my name is ____ and my account number is _____. Ive been reviewing my finances and I have come across some other companies offering lower interest rates . Ive been a loyal customer, so I wanted to reach out to you first to see if you can help reduce my interest rate.
NOTE: You could also utilize a financial hardship typescript with an interest rate reduction .
If you want to settle your debt, Dunn recommends saying the following:
Its important to be patient, persistent, and careful when you decide to negotiate, Black says. Each creditor is different, so dont let one poor experience discourage you from negotiating. If your credit card company isnt willing to work with you, it may be time to get help from an outside source like a credit counseling agency.;
Be proactive and talk to your card issuers before theres a problem, because they realize people are going through difficult times and theyre more willing to offer you solutions than they maybe have been in the past, Black says.
Negotiate Down Late Fees
While this isn’t easy, you certainly can put the odds in your favor by making contact with the credit card company in a proactive manner instead of waiting for them to contact you. When you call, remember that you are dealing with a person who may have had the same issues as you.
Describe your present situation to the credit card company and let them know that this is a one-time event and your payment history proves it. If the nice approach doesnt work, let them know that you are looking at other credit cards and would be happy to stop looking if the late fee is removed. This only works if you dont have a history of late payments.
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How To Negotiate With Your Credit Card Company
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So youre wondering if you can negotiate with your credit card company? The short answer: it depends.
Credit card companies may negotiate on some things , due dates and even minimum payments. But other things like special offer terms arent really negotiable. The key is understanding what you can negotiate on, as well as how to negotiate.
What can you negotiate?
Payment due date. Your due date is typically automatically set when you get approved for your card. But if a particular payment date isnt working well for you, ask to get it changed. Some credit card companies are so flexible about this that you can just change your due date online.
Interest rate. Lets say youve had a credit card for a few years. When you first signed up, you had mediocre credit. Now, you have much better credit, a low balance, and youve made on-time payments for years.
The credit card company probably wont just hand you an interest rate reduction on a silver platter. But you can ask. And, chances are that if you mention that you found a better interest rate deal elsewhere, the company will reduce your interest rate to keep your business.
Annual fee. Annual fees are often waived for new customers, but getting an annual fee waived after youve been a cardholder for a few years may be a bit more difficult. That doesnt mean its not worth the effort though many issuers would rather keep you as a client and waive a fee than lose you.
How can you negotiate?
Settle Your Credit Card Debt Yourself
In a debt settlement, you make an agreement with your credit card lender to a new set of payment terms. The credit card company may agree to forgive part of your debt or agree to a new payment schedule to allow you to get back on track. You likely wonât be able to negotiate a debt settlement unless you are already past due on your debt. Otherwise, the credit card lender will assume you can pay back your debt.
You can try to settle your credit card debt on your own. You may want to write down your credit card debts on paper or a spreadsheet and start budgeting to find out what you can afford to repay. List the interest rate and the balance you owe for each card. This way when you’re ready to contact your credit card companies youâll have the information available and know which ones are worth trying to negotiate with.
Why do credit card companies do debt settlements?
Before negotiating with a credit card company, itâs important that you understand your lenderâs viewpoint and motivations. They want to prevent a situation in which their loan is never repaid, and they understand that you may have a certain amount of money available to repay your debts. They also understand that money may need to go to pay multiple creditors. Knowing this, they hope you will pay off your debt with them instead of paying your other bills before you pay them.
Try these strategies if you have multiple debts to pay.
Debt Settlement Downsides
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Call The First Card Company And Try To Reach The Supervisor
Then I would grab the phone number off the back of the first card and start calling. Once I reached a customer service rep I would ask to speak to their supervisor. You can try to negotiate a better rate with the front-line rep if you want, but in my experience they rarely can negotiate rates with you.
Most of the reps I dealt with flat out told me no. Either way, ask for their supervisor. Once you are talking to the supervisor, you are now talking to someone who has authority to negotiate rates and they often are much more rational and will talk to you like a human being.
How To Negotiate When You’re Having Financial Problems
While credit card companies encourage you to call them if you anticipate having problems repaying your debt, some are more amenable to working with you than others, and it’s almost impossible to guess how they will react until after you call. With most companies, you should call if you know your payment will be late by a few days, or if you think a change in the regular payment datesuch as moving it from the first of the month to the middle of the monthwill make it easier for you to pay on time. Many companies may also provide you with relief if you are temporarily out of work or if a sudden illness or family emergency arises that you need to tend to.
Getting Help With Your Credit Card Payments During the Coronavirus Crisis
Many credit card issuers have announced different kinds of assistance for consumers during the COVID-19 outbreak. Available help includes credit line increases, collection forbearance, and skipped payments.
Other companies might cut off your credit if you provide any hint that you could have trouble making the payments. So, you need to be careful when you decide to negotiate, who you choose to negotiate with, and how much you tell them about your financial woes. If you do call, be prepared to respond to the credit card company’s concerns. Finally, don’t let a bad experience with one creditor discourage youothers might take a different approach.
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Refunding International Transaction Fees
Some credit card companies will refund international transaction fees charged when you use your card while traveling internationally. These fees can quickly add up, so if you forgot to check your policy and get a surprise on your next statement when you return home, call and see if they will waive those fees.