What To Do If Youre Being Sued
In some cases, you might not be able to fend off a lawsuit. If you receive a court summons, the important thing is not to ignore it. Unless you negotiate a settlement in time and the lawsuit is withdrawn, you should file a response to the summons by the deadline. In most cases, youll have 30 days to respond, but some states provide only a few weeks.
If you dont respond, an automatic or default judgment could be placed against you. That could give debt collectors or creditors the ability to garnish your wages, take money from your bank accounts and even seize your property to pay off your debt. You obviously dont want that to happen.
Before you do anything, make sure you understand who is suing you. Are you being sued by a debt collection lawyer on behalf of your credit card company or is it being brought by a debt buyer?
Debt Settlement Vs Minimum Monthly Payments
Making minimum monthly payments on high-interest debt is not a good option for consumers who want to save money. It can take yearsdecades, evendepending on how much debt you have and what the interest rate is. Interest compounds every day on your entire balance, and with minimum payments, you make little progress paying your balance down each month.
Consistently making minimum monthly payments and forking over tons of interest might make you highly profitable to your creditors, and, yes, solid payment history is good for your credit score. However, we dont recommend spending more than you have to on interest to boost your credit score. A good credit score wont pay for your retirement money in the bank will.
Further, if the amount of available credit youve used is high relative to your credit line, that will hurt your credit score and potentially negate the effect of your consistent, timely payments. The AFCC report cites that “the average client reduced their total debt at the time of settlement of approximately $30,000 to $35,000 by roughly $9,500 after deducting fees.
Consumer who consistently make just the minimum monthly payment on high interest credit card debt can end in paying more in interest than the principal.
How Does Credit Card Debt Settlement Affect Your Credit Score
If you work with a debt settlement company, the company might advise you to stop making payments on your debt during the negotiation process. This may cause your debt to fall into delinquency, which your creditors will then report to the credit bureaus. Delinquencies stay on your credit report for seven years, meaning you could feel negative impacts even after you settle the debt.
Debt settlement may also affect your credit score if it affects your credit utilization. If you stop making payments on your debt, your balance may climb due to additional charges and late fees. Using too much of your available credit and not paying off debt will cause your score to drop while youre in the process of settling that debt.
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How To Negotiate A Judgment Settlement
As mentioned, handling a debt settlement can either be accomplished using a debt relief company or doing it yourself. Negotiating a judgment settlement can be difficult, but doing it yourself can save you a lot of additional fees and time compared to hiring debt relief companies.
Here are the steps to take when negotiating with your creditors directly.
Consider if You Are a Good Enough Candidate
Before taking on debt settlement yourself, analyze if its really a good option for you. Ask yourself these questions:
- Have you considered credit counseling or bankruptcy? Both of these options are more efficient. They are more likely to solve your debt issues faster, have faster recovery, and are less risky compared to negotiating a judgment settlement on your own. They also have better results.
- How delinquent are your debts? Most creditors will not even consider debt settlement unless the payments are at least 90 days late. In fact, settlement is more likely for debts that are approximately five months late.
- Can you settle financially? Whether your creditors want a lump sum or prefer a payment plan, you need to have the money for a settlement agreement.
- How confident are you? To successfully negotiate a settlement on your own, you need to be confident in yourself. If you arent, then perhaps you should hire a debt settlement company.
Know Your Terms
Reach Out to Your Creditor
If all fails, consider a debt management program.
Close the Deal
You Could Still End Up Making Monthly Payments For Up To 4 Years
Debt settlement still requires money to make settlement offers. Creditors and collectors wont forgive your balances and get nothing in return you must pay them something. So, you need to generate money for a settlement.
Heres how to works:
So, youre still going to end up making monthly payments, even with a settlement program. And a settlement program can take anywhere from 12 to 48 months, depending on how much you owe and how much you can set aside each month.
What if I dont have any money to make monthly payments?
If youre wondering where you get the money to make the monthly set aside, it depends on the settlement company. Reputable companies will review your budget and help you cut back to generate the biggest monthly set aside possible. But some disreputable companies may advise you to stop making any payments to your creditors and use that money for the monthly set aside instead.
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How To Prevent A Lawsuit
Although not unheard of, its rare for credit card companies to sue you before youve missed several months of payments. Your risk for being sued goes up past the six-month mark, which is when many creditors charge off an account. Thats when the creditor writes off a debt as uncollectible and reports it as a charge-off to the credit bureaus. You are still responsible for the debt, though. Thats also the point when your creditor might hand your debt off to a third-party collection agency or sell it to a debt buyer.
To avoid a lawsuit, try to settle your debts before a charge-off occurs. Call your creditor or the debt collector and see if you can negotiate a settlement, meaning it will accept less money than what you owe to settle the account. You can do this on your own or hire a debt settlement company to handle the negotiations.
Negotiating a settlement and coming up with the money to pay the settlement before a charge-off happens can be tough. Thats especially true if you have more than one delinquent account. So you might target one or two accounts to settle first. Its important to know which accounts you should prioritize for example, the ones most likely to sue you.
Beware Of Debt Settlement Scams
Some companies offering debt settlement programs may engage in deception and fail to deliver on the promises they make for example, promises or guarantees to settle all your credit card debts for, say, 30 to 60 percent of the amount you owe. Other companies may try to collect their own fees from you before they have settled any of your debts a practice prohibited under the FTCs Telemarketing Sales Rule for companies engaged in telemarketing these services. Some fail to explain the risks associated with their programs: for example, that many consumers drop out without settling their debts, that consumers credit reports may suffer, or that debt collectors may continue to call you.
Avoid doing business with any company that promises to settle your debt if the company:
- charges any fees before it settles your debts
- touts a “new government program” to bail out personal credit card debt
- guarantees it can make your unsecured debt go away
- tells you to stop communicating with your creditors, but doesnt explain the serious consequences
- tells you it can stop all debt collection calls and lawsuits
- guarantees that your unsecured debts can be paid off for pennies on the dollar
Read Also: Which Credit Card Companies Pull Transunion
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When Is Debt Settlement A Good Idea
People often wonder why they should even bother with a debt settlement given that theyll already be in default and the damage to their credit standing will already be done. However, debt settlement can be a wise decision for two reasons: 1) It eliminates the threat of a lawsuit, which might force you to pay your full balance and 2) Paying what you owe is simply the honest thing to do.
With that said, every situation is different and you must carefully evaluate the specifics of your own in order to make an informed decision regarding debt settlement. If you ultimately decide to take the debt settlement route, note that much like an attorney representing you in a legal matter, there are no guaranteed results in a debt settlement program.
Debt elimination or settlement is rarely successful, says Jeremiah E. Heck, partner in the Ohio-based consumer law firm Luftman, Heck & Associates. In my experience, the companies might be able to settle a debt or two, but in a very high percentage of cases, the consumer will eventually be sued by a creditor. At this point, there is little to nothing the debt settlement company is able to do for the consumer. Further, many of these types of companies charge large upfront fees that take away the ability of the consumer to offer settlements to the creditors.
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If Deep In Debt Shouldnt Settlement Loans Help Not Necessarily Experts Say
Why agreeing on a debt settlement with your creditor should be your last resort
Dubai: Its often considered the last resort of a person deep in debt to settle his or her dues by negotiating and agreeing with the creditor to accept less than the amount owed as full payment.
If youve been falling deeper into debt, youve also been frequently contacted by debt collectors seeking a timeline on when you will pay your outstanding dues.
If you dont want them to continue hounding you for the overdue money and not worry about getting sued over the debt, debt settlement loans, also called debt relief or debt adjustment, can help.
Talk To A Bankruptcy Lawyer
Need professional help? Start here.
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Covid + Credit: How To Negotiate With Lenders
During the Covid-19 pandemic, lenders may make accommodations for you, but you need to know how to ask for relief and negotiate your options.
Reading time: 5 minutes
Contrary to conventional wisdom, lenders are often willing to negotiate with customers who want to lower their interest rates, develop payment plans or pursue other arrangements to better manage their debt. Especially during the Coronavirus/Covid-19 pandemic, lenders may be more willing to make accommodations for you as long as you contact them to strike an agreement.
If youre falling behind and unable to make your minimum monthly payment on your credit card or other debts but youve been a reliable borrower in the past, contact your lender to see if they would consider reducing your interest rate or finding another way to make your loan more manageable.
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.
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Why Credit Card Companies Negotiate Debt
When finances get tight, credit card payments are often one of the first bills people let slide. After all, credit card debt is unsecured. If you dont pay your auto loan or your mortgage, your car or house could be at risk. The same isnt true with credit cards.
Thats not to say that falling behind on credit card payments isnt dangerous. When you pay any bill late, credit card bills included, you may damage your credit. Credit problems can haunt you for years. Plus, if you default on a credit card bill, theres a chance that the bank might sue you, and that leaves you vulnerable to more potential problems.
Credit card issuers are aware that your unsecured credit card debt may be at the bottom of your priority list if youre in a financial bind. When you fall behind on a credit card bill, the banks priorities may shift. Rather than risk you ignoring debt or filing for bankruptcy, a card issuer may be willing to consider negotiating credit card debt so that it gets back some of its money rather than nothing.
How To Settle Credit Card Debt Before Going To Court
- Jennifer Thomas
The best defense against being sued for credit card debt is, of course, to pay your debts before that happens. That doesnt necessarily mean paying them in full or right away. But even if youve already received notice of a lawsuit, its not too late to settle your credit card debt before you end up going to court.
If you think theres a chance you could be sued or youve already received notice of a lawsuit, you should contact your creditor or debt collector. Lawsuits are time-consuming and expensive, so the creditor or the debt collector may be willing to negotiate a settlement with you instead.
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.