Reducing Credit Card Bills Through Debt Settlement
If your debt isn’t affordable, another option is to negotiate a settlement with your credit card company. This is really only an option if you are behind on payments and the creditor fears you’ll declare bankruptcy or stop paying at all.
In this last-resort scenario, you can negotiate with the credit card company to have some of the debt forgiven. You’ll likely have better luck if you agree to make one lump sum payment, and pay it all off at once. But, you could also ask to be put on a payment plan that reduces interest and fees.
Companies don’t settle debt for people who are paying their bills on time though. This means your credit rating will be damaged by both your record of late payments and by the fact that the debt will be marked on your credit report as settled rather than paid in full.
Think carefully about whether it’s worth taking this hit to your credit, and explore other alternatives before to settling your debt in this way. But, if you truly can’t afford your bills and can’t lower them by getting a balance transfer or debt consolidation loan, this may be your only choice.
What Happens If You Don’t Pay Your Credit Card: Consequences Explained
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If you don’t pay your credit card bill, expect to pay late fees, receive increased interest rates and incur damages to your credit score. If you continue to miss payments, your card can be frozen, your debt could be sold to a collection agency and the collector of your debt could sue you and have your wages garnished.
Lower Credit Card Interest Rates
One of the first things that you should do when you are trying to get rid of your debt would be to lower the interest rate on your cards. Credit cards are notorious for having super-high interest rates. This rate can end up holding you back and making it nearly impossible to pay off your credit card. Luckily, there is a way that you can lower these interest rates. Certain accounts will lower your interest rate for a designated amount of time. This will keep your interest from accumulating and you will be able to pay off your debt much quicker.
To lower your interest rate, the first thing that you need to do is evaluate your situation. You will want to know your credit card terms, which would include your current interest rate, balance, due date, and grace period. It is also important that you know your .
After you have looked at your credit score, you will have to decide if it is good enough to use as leverage, or if you should try to improve it. If your credit isnt that great, then the company is not going to be very willing to give you a better interest rate. Some ways to quickly improve your credit score would be to only utilize 30% of your credit limit and pay off credit cards. This shows creditors that you are trustworthy and will get their money back on time.
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Pay Off Your Cards In Order Of Their Interest Rates
If you have credit card debt on multiple cards, some personal finance experts recommend paying them off according to the size of the balance, starting with the smallest. The idea is that the quick wins will give you momentum and motivation. However, it will save you the most money to pay your cards off in order of their interest rates, starting with the highest-rate card and moving to the lowest.
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Call Your Credit Card Company
Consumers can use a settlement company , or they can do it on their own, says Linda Jacob, a financial counselor with Consumer Credit of Des Moines. Theres no need to pay a company to settle for you. Save the fees and do the work yourself.
If youve decided to negotiate on your own behalf after weighing your options, its time to call your credit card company. First, ask for the department that handles debt settlements or collections. You may want to prepare a script beforehand, so that you know exactly how to frame your request.
Clearly and politely explain your financial situation and ask for exactly what you want. The initial answer may be no, but that doesnt mean you cant be persistent even if it takes multiple phone calls.
Document every conversation you have. Write down the names and job titles of anyone you speak to so you can reference them in follow-up calls if necessary.
You cant be afraid to ask for a supervisor or the supervisors supervisor, Sullivan says. The higher you go, the more likely you are to find someone who is willing to make a concession.
Want To Get Out Of Debt Learn How To Pay Less Interest On Your Credit Cards
Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018. Thomas’ experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning.
One of the great misconceptions about debt is that the cards themselves are bad. The truth is, they’re really not. Rather, it’s the effect of double-digit interest rates that make them so toxic to our personal finances. The exponential growth of an account balance quickly causes purchases we thought we’d easily pay off over a few months to grow into something that seems like it will take years to knock out.
Luckily, ridiculously high-interest rates don’t have to be part of your credit card experience. It’s possible to negotiate to get a lower interest rate if you know whom to talk to and what strings to pull. If you can do a little bit of work to get inside your credit card company’s head and are willing to spend 15 to 20 minutes on the phone, there’s at least a chance you can save yourself some dollars over the next year.
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More Than Three Missed Payments
Failing to pay your credit card issuer for more than three consecutive due dates in addition to the late fees, damage to your credit score and increased APR can result in your credit card issuer charging off your account. This means your credit card issuer does not believe that you will pay back your debt in full. From here, they sell it at a loss to a debt collector or will settle for less than you owe to get it off their books.
While the card issuer may sell your debt for less than you owe, the collections agency is still entitled to retrieve the full amount.
If your debt is sold to a collection agency, then your account will be reported as a collection account to the credit bureaus. This is damaging to your credit score and appears on your credit report for seven years. These agencies are known for being more aggressive than card issuers when contacting debtors for payments. However, debt collectors including credit card issuers are regulated in terms of what they can do to collect on a debt.
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Carefully Consider Your Options
Although you may have offers for lower credit card interest rates, make sure to carefully review your options and read all the fine print before you cancel a credit card or apply for new credit. Making changes to your credit may impact or lower your credit score.
Cancelling a credit card can lower your credit score since youre reducing your revolving credit limit. And while the effect is temporary and less severe, applying for a new line of credit can also reduce your score since it makes a hard credit inquiry on your report. You should only cancel a credit card if youre sure that it will benefit you and/or save you money.
Properly Set Up Your Account And Terminal
Sometimes, a simple mistake can lead to higher credit card processing fees. Avoid this by setting up your account the right way from the start, said Fenella Kim, founder and CEO of Reliance Star Payment Services. If you set up your account improperly, you risk incurring higher processing fees from providing incorrect business information.
“Setting up the account properly how the fee structure works,” Kim said. “The type of business, type of transactions and frequency of transactions matters.”
Similarly, the way your terminal is set up and used also affects processing fees. Kim suggests making a habit of processing transactions within 24 hours, which lowers the number of transactions for that period and thus reduces processing fees.
“If you do your batch process every day, it is more cost-effective instead of every few days or a few times a week,” she said. “Don’t wait, the longer you wait to process, the higher the fees and rates.”
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Which Approach Is Best For You
If you want to protect your credit rating and save the most money possible on monthly bills, paying off your debt ASAP is the best approach to lowering your credit card payments.
Both debt consolidation and balance transfers can help with the payoff process by lowering interest costs, and sometimes monthly bills. If none of these are viable options and your credit card balances have gotten too high for you to pay, you may need to consider debt settlement.
To decide what’s best for you, you’ll need to take into account your current financial situation, your credit score, the cash you have available to pay off your debt, and your goals for the future.
What Happens To Your Credit Card Debt When You Die
If a person with dies, their credit card issuer is notified and will stop assessing penalties such as late fees. Often the debt will transfer to the next responsible party which could be any co-owners of the account, a spouse or the deceased person’s estate. Whether or not debt can be transferred to a spouse depends on whether or not the deceased person lives in a community property state such as Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
If the debt is transferred to the estate, then it’s the responsibility of the executor of the estate to liquidate any assets necessary to pay off the credit card debt. If the estate is worth less than what is owed, then the debt collectors usually have no recourse for collecting on the debt.
Know Your Budget: Track Your Income And Bills
Next, collect recent pay-stubs to understand your typical monthly income .
Now, on the debt side, add to your list of credit card balances a collection of your recent monthly and annual bills. That’ll likely include things like:
- Rent, mortgage and other housing costs
- Utilities, like water, gas, heating and electricity, broken down by average monthly balances.
- Loans and insurance: Car loan and insurance, student debt payments and other personal loan or insurance costs
- Subscription service payment
- Grocery and commuting bills
- Education and child-care costs
- And anything else that’s a regular monthly payment, like gym memberships and public transport costs.
You can also load this information into an online budgeting tool, such as Chase’s Budget Builder, to keep on hand for future reference. There are also plenty of budget apps online that are free and easy to use.
Once you have all of this, you’ll have a clearer understanding of your total expenses and income, and how much credit card debt adds to monthly costs.
Ways To Lower Your Credit Card Interest Rate
The two main ways to lower credit card interest rates are to negotiate with the credit card company or to consolidate credit card debt into one lump sum with a lower interest rate. There are a variety of different means to do that.
Negotiating a lower interest rate, if successful, has an immediate effect on your monthly payment. It also doesnt have a negative impact on your credit score some consolidation methods include inquiries into your credit history and can reduce your score.
But if you are looking for a lower rate because your credit card debt is growing month-by-month with no end in sight, shaving a few percentage points off your rate wont make a big enough dent and youd be better off consolidating debt.
Consolidating debt, depending on which method you choose and your financial situation, can also have its downsides.
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Negotiate With Credit Card Processors
The best way to negotiate with payment processors is to be seen as a merchant that adds value, thus making the vendor want your business, said Rey Pasinli, executive director at Total Apps, a merchant service provider.
You can negotiate with credit card processors by leveraging your transaction volume. This is because the more you sell, the more transactions you perform, and the more value it adds to the processor, Pasinli said.
“Processors, just like any other business, can negotiate with their suppliers off of the volume of processing their clients complete,” he said. “The more you give them, the more negotiating power they have upstream to lower their overhead in different areas. In turn, they can lower your rates if it is worthwhile to them.
Improve Your Credit Score
Your credit score gives lenders a glance at how you use your credit. If you have a healthy credit score, it shows youre responsible with managing your credit. The better your score, the easier it may be to get approved for things like loans, lines of credits and credit cards. A higher credit score can also help you qualify for a lower interest rate. If your credit score is low, make sure youre committed to paying down your debt and making your payments on time.
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Talk To A Bankruptcy Lawyer
Need professional help? Start here.
Get Free Advice About Dealing With Debts
If you need more support or dont know where to start paying off debts, youre not alone.
Nearly half of people in debt told us they arent sure about the best way to pay off their debts, and that is where a debt adviser can really help you. make the right decisions so most of your money will go to paying off your debts. This means you could be debt-free sooner than you thought.
A debt adviser will:
- treat everything you say in confidence
- never judge you or make you feel bad about your situation
- suggest ways of dealing with debts that you might not know about
- check you have applied for all the benefits and entitlements available to you
- always make sure you are comfortable with your decision.
Three quarters of people who get debt advice feel more in control of their finances afterwards.
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If You Can’t Afford The Minimum Payment
Your credit card company might let you pause your card payments if you cant afford them because of a temporary problem – for example if youve lost your job or youre paying off priority debts like rent arrears.
Youll need to start paying again when you have more money – for example when youve got a new job or cleared your priority debts. The card company are more likely to let you pause your payments if you get advice and make a plan to deal with your debts. Ask your nearest Citizens Advice to help you make a plan for your debts.
If you can’t afford the minimum payment in the long term as well as paying household bills like rent, find out the best way to deal with your debt.