Stop Using Your Credit Cards
If you want to get out of credit card debt, its time to break up with your credit cards. And you dont have to have a nice dinner or a big conversation with them. Just put them on the table and say, Its not meits you . . . Youre bad for me, my finances and my future. Goodbye. And never look back.
If you stop using these credit cards, youll never run the risk of a credit card balance. Ever. Again. Start using a debit card and cashyour own real moneywhen you pay for things. Do this for you, your finances and your future.
Paying Back A Consolidation Loan
Making the minimum payment on a consolidation loan will help you get out of debt eventually. However, the minimum payment on a line of credit will usually only cover the interest that you owe. You wonât get out of debt if you only pay this amount. Increase your payments if you can to help reduce your debt faster and pay less in interest.
A consolidation loan won’t hurt your credit rating if you make your payments on time.
Get The Best Offer By Closing Your Account
Once I had my balance transferred, I would call back to that card company to close my account. Many of the credit card companies have closing specialists whose only job is to do any and everything to keep your business. You can ask these guys for a ride on a unicorn and they will try to make it happen if it means you will keep your account open.
I found that these guys often will be able to offer you a better deal than anyone else, because they know you mean business. I rarely took advantage of their deals, because I had already transferred my balance, but it is something to keep in mind.
So there you have it my quick how to guide to negotiate with credit card companies. I assure you that you will have varying degrees of success based on your credit history, payment history, and other factors, but it never hurts to try. Oh and by the way, this is the same method I use when trying to negotiate late fees or any other charges from them.
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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.
Streamline Your Budget To Maximize Cash Flow
Next, you need to get as much cash flow as possible for your debt reduction plan. See how much free cash flow you have in your budget thats all the cash you have left after you pay bills and necessary expenses. Then see if you have any unnecessary expenses you can cut temporarily while you reduce your debt. Remember, you will put these expenses back once youre done eliminating debt. Think of it like a diet you stick to while you lose all that extra financial weight.
The more cash flow you have available to reduce debt, the faster this goes. Faster also means fewer interest charges applied to your debt, so it saves you money, too. Its worth losing a few discretionary expenses for a short time to these high interest rate debts paid off fast.
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How To Answer The Complaint
Along with the summons and complaint should come instructions concerning what you need to do next. Usually, youâll have about 20â30 days to submit an answer. If thereâs an answer sheet provided or in your written pleading, youâll want to:
Admit or deny each claim
Raise any defenses
Counter with your own claims against the company
Indicate any income exempt from garnishment
Sign the bottom of the page and keep a copy of the complaint and your answer for your records. Along with your answer, youâll have to include a filing fee to the court clerk. If you canât afford the filing fee, you may qualify for a waiver.
Make sure you answer the complaint within the time allowed or a default judgment could be entered against you. A default judgment in the credit card company or debt buyerâs favor allows them to take more aggressive steps like:
Wage garnishment – taking money from your paycheck
Levying bank accounts – direct access to withdraw funds
These are harsh punishments to collect on a debt you may not even owe. A money judgment also lowers your credit score. Donât let corporations bully you into joining the 95% of people who donât contest complaints. Do surprise them by showing up and making them do the heavy lifting. Come prepared by knowing what to sayâand leave outâin court. The following section will provide you with some basic doâs and don’ts.
Gather Credit Card Offers
I gathered up a bunch of offers from other credit card companies. I would often get 0% credit card offers in the mail, so I just saved them up for a couple weeks until I had a few decent ones that I was slightly interested in. The reason I gathered these up was to have a baseline to negotiate from. These offers would more or less allow me to prove to my credit card company that I didnt need them, because I had other offers. I could have made these offers up, but I dont believe that lying to get what you want is ever justified even to credit card companies.
If you dont have any, you can just find some of the 0% balance transfer offers and use those as negotiating leverage.
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Is This An Old Debt
After making sure that the debt in question is yours, check to see if it’s “time-barredâ or too late to sue you. Credit card companies only have a certain amount of time to bring a case in civil court. Depending on state law, this can range between 2â6 years. Youâll want to check your local rules to see what statute of limitations applies. Time generally begins to run from the date of your last credit card payment. If too much time has passed, you can say so to the judge and your case should be dismissed.
Debt Settlement: The Basics
The basic idea behind any debt settlement program is to negotiate with credit card companies and pay them less than what you owe. In the simplest terms, creditors get less than the full amount you owe. Debt principal reduction is always the goal.
For example, a counsellor may be able to get the creditor to agree to accept $1,000 as payment in full, instead of the $5,000 that the debtor owes.
While this summarizes settlement, doing it alone and with a company entails different procedures and has differing success rates.
The most important thing is seeking help and starting somewhere so you can get out of debt.
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Avoid Taking On More Debt
Don’t take on more debt. If you continue to spend more than your income, it will be difficult to become debt-free.
If you’re considering borrowing more money, take a close look at how it would impact:
- your existing debt payments
- your ability to save for other goals
You’re at risk of no longer being able to manage your debt if:
- you’re already having trouble making your debt payments
- you’re close to your credit limit and would have trouble making higher payments if interest rates increase
More Ways To Avoid Debt
The reason you ended up struggling with your bills a string of bad luck, an unforeseen crisis or just poor spending habits is less important than figuring out a way to get out from under your debt.
Stop paying too much interest. When you carry balances on several cards, you can cut your interest rate when you combine your credit debts.
Shopaholics: Rein in your buying. This enduring advice is worth a reminder: Buy only what you can pay for each month. When you need to find the best deal to stay on budget, you might find an online shopping comparison tool helpful.
Understand your credit score. Getting out of credit card debt and monitoring your credit score go hand in hand. A free credit report helps you track your progress to improve your score, which ups your chances for better interest rates in the future.
Put your leftover pennies to work. While your credit debt is a pressing financial priority, you can still put away some money for later by investing money that you wont miss: the nickels and dimes leftover when you buy something. Heres how you can invest your spare change.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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Pay A Pro To Help Or Negotiate Your Debt Yourself
Many people succeed at bargaining on their own with their lender. But if you want help, a credit counseling service, a debt settlement business, or an attorney familiar with credit issues could assist.
Debt settlement companies fees typically include a percentage of the amount the business ultimately saves you by negotiating a lump sum payoff. Credit counseling services take a sum you provide and negotiate with your creditors to make small payments to all of them. Fees may run into thousands of dollars.
Research any company youre considering. The Federal Trade Commission outlines red flags for debt settlement scams, such as a company guaranteeing it can make your debt go away or telling you to stop communicating with your creditors without explaining the repercussions.
Your Creditor Can Also Sell Your Outstanding Account To A Collection Agency Or Debt Purchasing Firm
The creditor that originally provided you with goods, services, or credit can be described as your original creditor. It is possible to have a creditor who is not your original creditor. This situation arises if your original creditor sells your outstanding account to another firm. In the event that your outstanding account is sold, the debt buyer steps into the shoes of your original creditor.
As a general rule, accounts outstanding for less than six months are not sold. And, the major chartered banks in Canada rarely sell their outstanding accounts, regardless of how long the accounts remain unpaid.
If you owe monies to a non-bank creditor, the odds that your outstanding account will be sold typically increase as your account ages. A handful of creditors in Canada sell their accounts when they are only six months in default. However, the majority of accounts in Canada that are sold to a debt buyer are more than three years old.
Unpaid consumer accounts are a commodity like fruit: the older the accounts, the less they are worth. When a creditor sells debt that is more than three years old, the debt might be sold for less than a penny on the dollar.
There are two categories of debt buyers:
- Collection agencies
- Debt purchasing firms
Some collection agencies, aside from their primary business of collecting accounts on behalf of other creditors, also purchase inventories of overdue accounts.
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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.
Be Aware Of Possible Disadvantages
Negotiating a credit card debt settlement can have some downsides that you should be aware of before making a decision to do it.
Depending on how it plays out, negotiating a credit card debt settlement can significantly lower your .
Even before you enter into an agreement, companies may close your account or prevent you from using the credit line any further. The process can also temporarily lower your access to capital from other borrowing sources as you are now seen as a bigger risk.
Other lenders may charge you higher interest rates to compensate for your heightened default probability. In some states, your insurance costs for things like automobile insurance might rise. The length and severity of these outcomes will be far worse with a bankruptcy filing, so it can still be worth it to go through with the settlement.
It’s also important to note that forgiven credit card debt can be treated as taxable income. If the total debt forgiven is $600 or more, the lender is going to give you a Form 1099-C, Cancellation of Debt to use in your personal tax filing. Do not try to avoid claiming this as the IRS is going to be notified of it by the lender.
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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.
Look Into Debt Settlement
For-profit debt settlement companies work to negotiate lump-sum settlements with creditors.
Debt settlement companies ask you to stop making payments to your card issuer and instead require you to make monthly payments to your debt settlement company to build your account, Sterling said. Once your account grows large enough, the debt settlement company will contact your card issuer and make an offer to settle for less than you owe. If the issuer accepts the offer, the debt settlement company pays your creditor and keeps a percentage of the money youve paid them.
This is often a last resort, and if you go through with this option it will lower your credit score.
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The Debt Shame Spiral
Many people get caught in a downward spiral after letting their debt grow or missing a payment or two.”There’s a lot of shame associated with debt,” explains financial psychologist Brad Klontz, Psy.D., CFP. “This leads people to either put their head in the sand or to feel intense anxiety or depression, feeling crushed by the debt. Neither of those responses is healthy.”
Paul Golden, a spokesperson for the National Endowment for Financial Education , highlights ten warning signs that you may have too much debt. If you answer yes to one or more of these questions, he says, it’s time to take serious action:
If You’re In A Temporary Bind
Considering that the process of debt settlement is a last resort, first consider credit cards that offer no interest and help you pay off your debt. Most balance transfer cards require applicants to have a good credit score to qualify, but they can help you pay off your principal without worrying about interest charges. Just make sure you pay off your balance before the intro period ends. Some of our favorite zero-interest credit cards that offer balance transfers include the Citi Simplicity® Card, the U.S. Bank Visa® Platinum Card and the Wells Fargo Platinum card.
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