If you're having a hard time meeting the monthly minimums on your credit cards, let alone paying off the balance, you might want to consider trying to negotiate credit card debt. Debt settlement, as it's called, has become an increasingly popular way out of the hole for consumers.
Debt settlement may be right for you if you're faced with large credit card debts you can't pay, but you're able to save up enough to pay off a portion. It can be especially helpful for consumers who want to avoid bankruptcy.
Debt settlement, as it's known, involves an agreement between you and your creditors that you'll pay back a chunk of your debts (40 to 60 percent, in most cases) in lump sums. You're released from much of your debt while holding onto much of your credit, and your creditors walk away with more than they'd get in bankruptcy proceedings or through a collection agency.
Most people who try to negotiate credit card debt are already faced with few options. There's no way they can repay the full balance of what they owe, and there's no way they can keep paying the monthly minimums over the long haul. Chapter 7 bankruptcy is a potential option, but only if they qualify, and even then the end result is wrecked credit and long-term financial restrictions. Debt settlement may make much more sense.
That has been the case with more and more people. With fewer jobs and more debt that can't be repaid, consumers are looking for a way out. Credit card companies, for their part, are more willing than ever to negotiate credit card debt because they're already writing off an increasing number of accounts and know they're unlikely to get anything in bankruptcy court or lawsuits.
It's possible to negotiate credit card debt on your own or through a debt collection company. Doing it without help isn't recommended, for several reasons.
First, if you go it alone, you'll be in a weaker bargaining position as an individual. Second, you'll have to negotiate creditor bureaucracy without help. And maybe most important, some credit card companies simply won't negotiate with you directly.
The regular business contacts between debt settlement companies and creditors, meanwhile, give settlement companies an edge in reaching settlements that are favorable to you, and they can do so much faster. You'll also have a louder voice in the settlement negotiations and someone who can guide you through the process. And a good settlement company can deal with calls and other communications from creditors and collection agencies.
What happens once you hire a debt settlement company to negotiate credit card debt? Here's a look at how it works:
A debt settlement company uses your money as a bargaining chip to convince credit card companies to settle. Instead of continuing to make monthly payments, you stash the money in a special trust account to be used as lump-sum payments once settlements have been reached. Credit card companies generally ignore negotiation efforts if you're still sending them money, so withholding it gives them an incentive to come to the table.
Debt settlement isn't without risks, but that's true of any financial approach, including bankruptcy. Being aware of the risks and discussing them with knowledgeable professionals is an important first step. Industry regulations are enforced by the Federal Trade Commission, so there are protections in place against fraud and abuse in the industry.
So should you consider trying to settle your credit card debts? It may be a good idea to negotiate credit card debt if you can't pay back your balances, you don't want to declare bankruptcy, but you think you can store up some money over several months to pay off a portion of your debts.