Should I Negotiate Credit Card Debt Settlement?

Negotiating credit card debt settlement is perhaps the most effective way to reduce your debt. If you do not know how a settlement works, it is simply paying a lump sum payment up front for a portion of what you owed in exchange for your creditor writing off the rest. So if you owe $2000, settling for 50% means you only need to pay off $1000 and the rest is forgiven (YAY!). Well, not exactly. A credit card debt settlement is not without consequences and they should be carefully evaluated before you talk with your creditor. Read on to find out the advantages and disadvantages of settling and whether it is a suitable option for you.

Disadvantages

Most people prefer to hear bad news first so let's start here. The biggest drawback for credit card debt negotiation is to endure the long, tedious, tiresome, laborious, painful, and frustrating experience. If someone owes money from you, you would not just write off half the debt without at least some resistance. So why would your creditor be any different. Expect long discussions on the phone, months of corresponding, rejections, refusals to talk, or even contradictions among different employees. Patience and persistence are essential to pulling off a successful settlement and if you don't possess at least some of those 2 attributes, then you might consider letting the CCCS(Consumer Credit Counselling Service) to handle your credit card settlement.

Second – you actually need some skills to negotiate credit card debt. This has nothing to do with how well you can put up with the ordeals of negotiating, but rather having an instinctive ability to know when to say what. There is no exact science as to how to discuss with your creditor and every company has different policies to settling credit card debt. How good your settlement is depends on how well you are able to maximize your gains with that particular company, not on how much you actually settled. A settlement for 50% can be considered a bad deal if that company typically settles for less. The trick is to gauge how much they are willing to accept, convince them this is their best option, and know when to strike a deal. Not everyone is able to do this.

Third – Negotiate credit card debt settlement does not wipe the slate clean. Your credit rating will be negatively effected and at worst it can be as detrimental as bankruptcy. You get one negative listing when settling with your original credit card company and if the account has gone to collection you will get two negatives. When you are in collection, that means your creditor has sold (usually at ridiculous 3-10 cents on the dollar) the debt to a collection agency; in other words, they would rather receive tax benefits than hoping you would pay off the balance. In either case, if you fail to negotiate better credit rating as part of the agreement, it would be like dropping a nuke on your credit report.

Fourth – A corollary to the previous point, you will need to pay tax on a “charged off” settlement. What?! I am being crushed by credit card debt and the government is taxing me?!?! That is just the cruel reality; but it can be remedied by carefully negotiating the terms and the effects on your credit score.

Fifth – Your creditor can sue you. While not likely to happen, they will certainly use that as a leverage. You can mitigate this risk by demonstrating you have few assets that are of value. But if after telling them you need a settlement for debt relief and you start accumulating even more debt to finance your dream car, watch out.

Negotiating credit card debt is not as doom and gloom as I might have portrayed it to be. I just want you to know the potential downsides of what you are getting into and to remove any false expectations. So here are what you could accomplish with a successful credit card negotiation.

First – The emotional lift of being debt free. No matter what happens you will have satisfied your debt obligation. It also saves the embarrassment of declaring bankruptcy.

Second – You can reduce your debt much more quickly and significantly through a settlement. How much? If your debt is with the original company, you can get up to 50% deducted with a 3 year payment plan at no interest. When the account is with collection agency, expect even a better settlement at 15-40% of the balance because they obtain the debt for a miniscule amount. Remember though, nothing is guaranteed.

Third – You will have the option to negotiate how your credit rating shapes out. It's a foregone conclusion that your credit score will be ruined if you allow someone else to negotiate credit card debt for you. By doing it yourself though, you will have the opportunity to contain the damage (which most companies are willing to as they already got paid).

Fourth – Your creditor is just as nervous as you are and wants to get paid! He knows he would receive nothing if you become bankrupt. The principle of salvaging something rather than losing everything is at work here. This is more of a leverage than an advantage of negotiating credit card debt settlement; however it is something that you can more easily exploit when negotiating yourself.

You can find more tips here on how to negotiate credit card debt.