Negotiating Your Credit Card Debt: Should You Try It?

In a tough economy, with bills piling up and incomes dropping, more and more consumers are asking whether they can negotiate credit card debt. It’s an increasingly popular way to deal with debts consumers simply can’t afford to pay, especially when they want to avoid bankruptcy.
If you’re facing mounting credit card debt and you can’t pay it, but you can sock away enough to pay back a decent portion of your outstanding balance, debt settlement may be for you. When you negotiate credit card debt, you’re agreeing to pay the credit card companies in lump sums, usually about 40 to 60 percent of your debt. You’ll be released from what you owe, while the creditors get back more than they would in bankruptcy court or from selling the debt to a collection agency for pennies on the dollar.
If you’re considering debt settlement, it’s probably because your choices are already limited. You can’t pay off the full balance of your debts, but you can’t afford to continue paying the minimum monthly balances either, even if they’re reduced through a payment plan. Chapter 7 bankruptcy would remove your debts, but it would also level your credit score; plus, odds are you won’t qualify. Settling your debts may be the best option.
It’s certainly becoming one of the most popular. The sagging economy has left many jobless or underpaid consumers facing debts they can’t repay. Credit card companies, meanwhile, have more reason than ever to consider settlements. They’re losing accounts to write-offs, and they’re more willing to release struggling consumers from some of their debts on the assumption there’s little chance of recovering everything in bankruptcy court or lawsuits.
Many consumers trying to negotiate credit card debt use debt settlement companies, professional businesses that represent consumers in trying to convince creditors to settle. Others go at it by themselves, but this approach has major disadvantages.
Individual consumers don’t have much bargaining clout and can’t negotiate very good settlement amounts. Figuring out the bureaucracy and red tape of credit card companies can be very difficult. And there are plenty of creditors who will only negotiate credit card debt with professional debt settlers.
A debt settlement company, on the other hand, deals with credit card companies regularly, in bulk, giving it an advantage in securing favorable settlements for consumers, an on a faster timeframe. A settlement company can give you a stronger voice in negotiations and can guide you through a complicated settlement process. It can also deal with all communications from your creditors, including collection calls.
Debt collection companies use a common approach to negotiate credit card debt, and it’s important to know what that is. Here’s the way it usually works:
When consumers first hire debt settlement companies, they’re told to withhold all monthly payments and instead put them in special trust accounts. The money is set aside for lump-sum payments to creditors once settlements are reached. It’s also used as a bargaining chip to draw creditors into negotiation, since they generally refuse to negotiate so long as you’re making payments.
If you decide to settle your credit card debts, you’ll face some risk, as you would if you made any financial decision, including bankruptcy. You should always be aware of your decisions and their risks. But the settlement industry is regulated by the Federal Trade Commission, which provides protections against fraud and abuse.
If you go with debt settlement, make sure to stay informed and pick the best settlement help. Remember that there are professional advocates who can help you negotiate credit card debt and receive settlements you can afford.