Negotiating With Credit Card Companies: A Good Idea?

You’re deep in debt, with thousands owed to credit card companies, and your options are limited to three: declare bankruptcy, work out a payment plan that reduces your interest but not your balance, or negotiate credit card debt. You’ve decided it’s not yet time to file for bankruptcy, but you also don’t want to get stuck with a payment plan that leaves you chipping away at a massive debt indefinitely.
Instead you think you can save up enough money to pay off part of your credit card debt all at once. It may be time to negotiate your debt with the credit card companies.
Trying to negotiate credit card debt, a process known as debt settlement, involves reaching settlement agreements with the credit card companies in which you make lump-sum payments covering a portion of what you owe — typically 40 to 60 percent. You get to walk away from your debt without suffering the credit destruction of bankruptcy, and your creditors get to collect much more than they could recover in bankruptcy court or lawsuits.
More people are trying to negotiate credit card debt than ever before, and there hasn’t been a better time to do it. You’re hurting financially, but so are creditors, who have been forced to write off increasing numbers of accounts. Many of them would rather take a substantial chunk of what they’re owed than nothing at all, even if it means releasing you from the rest of your debt.
You can pursue debt settlement by yourself or you can hire debt settlement companies to negotiate credit card debt for you. Doing it yourself has major downsides, though.
You’ll have to figure out the twists and turns of the credit card companies, and that can be very difficult without professional assistance. You’ll also be at a distinct disadvantage when it comes to negotiations, since you’ll be dealing with major corporations as an individual. And a lot of credit card companies flat out refuse to negotiate with consumers unless there’s an intermediary.
With a debt settlement company, you’ll have a firm that has regular business with creditors. It can typically reach better settlement agreements on a faster timeframe than you could.
You can also use a settlement company as a buffer between you and the credit card companies, dealing with all communications, including collection calls. And you’ll have a stronger presence in negotiation than you would by yourself, as well as a knowledgeable expert to guide you through a complex process.
Before you decide to negotiate credit card debt or hire a debt settlement company, it’s important to know the process. Here’s how a typical case works:
When you start, the settlement company you work with will instruct you to stop all payments to your credit card companies. That money will instead be diverted to a trust fund established by the settlement company, where it will build into a pool that can be used to pay the credit card companies in lump sums after you’ve settled with them. The fund also gives creditors, who won’t bargain with you as long as you’re still paying them, incentive to reach settlements.
As with any major financial decision, there are risks inherent in debt settlement. But the Federal Trade Commission regulates the industry, so there are rules in place to protect against fraud and abuse.
The key to making any financial decision is knowledge. It’s important to know, if you decide to try to negotiate credit card debt, that there are advocates who can help you win fair settlements to get you out of the hole and avoid bankruptcy.