Guide For Debt Settlement
One of the big truths in business is that everything is negotiable. Even when prices or things look like stones, getting a discount is often as easy as knowing who to ask and knowing how to ask for it.
When it comes to the balance of your debt on your credit card, the opportunity to negotiate what you actually owe is as great as before. With a little knowledge and courage, you may be able to reduce your balance by 50-70%. Read on to find out how.
Fundamentals of Debt Settlement
Debt settlement is the process of offering a large one-time payment to the existing balance in exchange for forgiveness for the remaining debt. For example, someone who owes $ 10,000 on one credit card might approach their credit card company and offer a one-time payment of $ 6,000. In return for this one-time payment, the credit card company agrees to forgive or remove the remaining $ 4,000.
Why do credit card issuers voluntarily choose to forget most of the balance to pay? Usually, it's because credit card issuers either lack the cash themselves or are afraid of the inability to finally pay off the entire balance. In both situations, the credit card issuer tries to protect the finishing line - an important fact to remember when you start negotiating. Remember, credit cards are generally an unsecured loan, which means that there is no "guarantee" that your credit card company can take to help pay off the unpaid balance.
While getting your company to complete your balance may sound too good to be true, it is not so. Not surprisingly, lenders do not like to advertise a settlement and there are no independent statistics about that level of success, but if you are really left behind in debt payments and soaring bankruptcy, your lender may be willing to take what he can get, giving you one last chance to revive.
Downside of Debt Settlement
Although debt settlement has several serious advantages, such as eliminating monthly payments and making your current debt burden seem smaller for potential lenders, it also has some important flaws that you need to consider. Failing to calculate it can potentially put you in a more stressful situation than before.
Debt settlement generally requires you to generate a large sum of money at once. Remember, this is what makes debt settlement attractive to your creditors. Instead of receiving the minimum monthly payments for the next few years, they get much larger payouts now.
Since most people in debt do not have a sizeable amount of money lying in their bank accounts, you should stop and consider where the funds will come from and how they can be used elsewhere in your personal finances. In short, you have to be sure that the money you use will not leave you in a small place a few months later.
Debt settlements will usually appear on your credit report and lower your credit score, hurting your ability to get affordable loans for the next few years. In essence, when other lenders look at your report, they'll see you have a history of not paying back what you borrow. It's not hard to imagine that this will make lenders less willing to lend you large sums of money. Typically, debt settlement will greatly hurt your credit score for two to four years and stay on your report for up to seven years.
How to Try Debt Settlement
If you decide that debt settlement is the right step for you, the next step is to decide whether you want to do it yourself or hire a professional. In making this decision, it is important to remember that your credit card company has to deal with you and that the debt professional has no real ability to negotiate a better deal than the actual account holder. Furthermore, the debt settlement industry has a fair share of fraudsters, rip-offs, and fraud. With that in mind, many people wisely choose to try it themselves first.
Whether you choose to use a professional or not, one of the key ingredients in negotiating a successful debt settlement is to make it appear that you are really in a bad position financially. If your lender really believes that you are between a rock and a difficult place, it will be more likely to believe that it will lose by declining your offer.
For example, when your credit card company credit settlement department manager looks at your last few months' reports and sees many trips to a five-star restaurant or designer's shipping label, it's impossible to see you as genuinely in need or worthy of sympathy. To increase your chances of success, you should cut your spending on the card to zero for a period of three to six months before requesting a settlement.
On the same note, if you have made minimum payments on time every month, you look like someone who almost abandoned your debt obligations. With this in mind, your debt settlement offer should be directed to the company where you are left out of your payment.
When it's time to finish, you'll want to start the process by calling the main phone number for your credit card customer service department and requesting to speak with someone in the "settlement department". Once you have someone from this department on the phone, you'll want to explain how horrible your situation is. Highlight the fact that you've scraped a bit of cash together and hope to finish one of your accounts before the money runs out elsewhere. By mentioning the fact that you have multiple accounts where you run debt settlements, you will most likely get a competitive offer from one company for trying to compete for your cash.
As a rule of thumb, start by offering your creditor a certain dollar amount that is approximately 30% of your outstanding balance on the account. Chances are, this will fight your bid with a higher percentage or dollar amount. If the lender offers something above 50%, consider trying to settle with a different creditor or save money to help you pay your monthly bills in the future.
Last but not least, once you have completed your debt settlement with your lender, make sure to enter into a written agreement. It's not unheard of for a credit card company to verbally approve a debt settlement, just to leave the rest to the collection agency. Make sure the written agreement specifies the amount you have to pay for your entire balance to be forgiven of further payments
If They Say "No"
While the possibility of negotiating a settlement should encourage everyone to try, there's a chance you'll hear "no" somewhere along the way. If so, do not just hang up and walk, or you may miss another great opportunity to save money.
This will be a good time to ask your credit card company if it can lower your annual credit card percentage (APR), lower your monthly payment, or provide alternative payment plans. Often, your credit card debt settlement representative feels bad about having to say "no" and it may be more appropriate to say "yes" to any of these other options.