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Learn how to negotiate credit card debt settlement yourself and how to tell when it’s time to call in the pros.
When it comes to finance, most of us would prefer to solve our problems on our own without outside help. You probably don’t want to give someone an inside look at your finances. And how do you trust a complete stranger with an issue that’s so important. That’s why you’re here looking at a guide to how to negotiate credit card debt settlement yourself.
Before we get started with the DIY instructions, consider that when it comes to overcoming financial challenges, sometimes calling in the professionals is the way to go. Just like you take care of your health day-to-day, but you wouldn’t try to operate on yourself for major surgery, serious financial challenges often require professional help. So, this guide will teach you how to negotiate settlement on your own, but we’ll also explain when and why you may need to get help.
It’s important when trying to negotiate a settlement that you have realistic goals. You’re not going to get out of debt for nothing – you’ll need to pay something to get your balances discharged. How much you end up paying depends on what you want to accomplish and who you’re negotiating with.
Here are some basic facts that can help you set the right expectations for credit card debt settlement:
In many cases, you can negotiate to minimize the credit damage typically caused by settlement during the settlement negotiation. You may need to pay a larger percentage of the original amount owed to get a more favorable outcome for your credit. This is where professional help from a debt settlement company can be extremely beneficial. They have expert negotiators on staff who can help you get the best settlement agreement for your needs.
If you get contacted about a debt, always ask the person on the other end of the phone to verify the debt. They should be able to provide:
If they cannot provide this information OR the information they provide does not match your records, dispute the debt. Ask for the agency’s name, the name of the representative that you’re speaking with, and a contact call back number. Then ask that they send you a written notice about the debt immediately.
Once you receive this notice, you have 30 days to dispute the debt in writing. You should send the letter to the collection agency by certified mail return, receipt requested. This will ensure you know exactly when they received your dispute letter.
Even though settlement offers usually end up settling for just under half of what you owe, don’t start your negotiation that high. Most experts recommend starting around 15% of the amount owed and work up from there.
Also, don’t open with the fact that you want something like pay for delete or re-aging. Make a low-ball offer without any qualifications. Then, offer to pay a slightly higher percentage in exchange for the credit update. This strategy will give you room to negotiate an effective settlement that works for your needs and credit.
There are a few different types of companies that you may be talking to for a settlement:
A debt buyer is much more likely to settle for a lower amount. They paid pennies on the dollar to purchase your debt from the credit card company. If they purchased your debt for 5% of what you owed, then even a 10% settlement offer might be enough to get an agreement. They’d still make a 5% profit.
Original creditors are much less likely to settle and usually require higher amounts to get an agreement. Also, if the original creditor has not sold the debt, even a third-party collector can’t agree to a settlement without the creditor’s signoff. So, if you negotiate with ABC collection company, they must get the agreement from Capital One or Wells Fargo or you may still face issues. You could settle with the collection agency, but the original creditor will continue to come after you for the remaining balance.
An easy way to check if the original creditor sold the debt is to review your credit report. A debt that’s been sold will show the account as paid on the original account. Then a new collection account will appear on your credit reports from each of the three credit bureaus. This is a good way to double check who really holds your account.
From your very first contact with a creditor or collector, make sure to document and log everything that happens. Write down names of who you talked to with contact information. Detail what was said in phone conversations, in case you need later reference.
Also make sure that your settlement is provided in writing before you send a check or submit any form of payment. The debt settlement company should send you a formal settlement agreement by mail. It should include all of the details about the settlement. If the debt is still held by the original creditor, then a representative of that organization – and not the settlement company – should sign the agreement.
Before you start negotiating a bunch of settlements, make sure that this is the best debt relief program to use for your unique financial situation. Credit card debt settlement is all about getting out of debt fast for the least amount of money possible. But it can also damage your credit.
If one or more of your accounts are still with the original creditors and you’re still managing to keep up with the required monthly payment on those accounts, you may be better off with another solution. Debt management programs that you can set up through a credit counseling agency will help you pay back everything you owe in a more efficient way. It’s basically a payment plan reduces or eliminates interest charges, so it’s easier to pay off what you owe. That way, you can avoid potential credit damage entirely.
Even once you settle a debt, your work isn’t done.
According to the IRS, any portion of a debt you settle is counted as taxable income. Essentially, the amount you borrowed that you don’t have to pay back is treated as income. This means you should be receiving a 1099-c from the collector or creditor detailing the forgiven debt.
Unless you can qualify for an exclusion due to insolvency, you may be required to pay tax on the canceled debt. You’ll need to work with a licensed tax preparer to avoid this added burden on your taxes next year.
This is especially crucial if you negotiated special credit report terms in your settlement agreement. But even if you didn’t do so, you’ll still want to take advantage of your free annual credit review to make sure everything in your credit report accurately reflects the debt you settled.
Credit cards are some of the easiest debts to settle. If you have back taxes you need to pay off, you may be able to reach a settlement with the IRS using an Offer in Compromise. And if you have private student loans, you may be able to use settlement to get out of those for less than you owe. If you have federal loans, debt settlement won’t work.
If you aren’t successful at negotiating settlements on your own, don’t panic! There’s nothing stopping you from turning around and hiring a professional debt settlement company to do the negotiation for you. If a creditor won’t play ball or a collector refuses to agree to pay for delete, thank them for their time and get in contact with a debt resolution specialist. They will often have more success than you could achieve on your own – even if a previous negotiation already fell through.
Deciding whether you should work with a professional debt settlement company or negotiate a settlement on your own, depends on a few things:
If you’re talking to a debt buyer, then you’re usually better off negotiating the settlement on your own for two reasons. First, a debt buyer is the most likely debt holder to settle for a low percentage; you don’t need to be an expert negotiator to get a good deal. Second, on collection accounts that have been sold to a third party, you almost always want to negotiate pay for delete. Debt settlement companies always negotiate for accounts to be listed as paid as agreed. This wouldn’t remove the collection account from your credit report.
If your debts are still with the original creditor or with a collector working on behalf of the original creditor, then you’re in a situation where you’re usually better off working with a debt settlement company. These negotiations usually require more skill to get you out of the debt for a percentage of what you owe. In this situation, you usually just want to get out of debt for the least amount possible as quickly as possible. So, in this case, you want to call in the experts to get the fastest, cheapest exit from your debt as possible.
Article last modified on June 13, 2019. Published by Debt.com, LLC . Mobile users may also access the AMP Version: - AMP.