If you’re in a lot of credit card debt and want to pay it off, but don’t know where to begin, you might be able to settle that debt for much less than what you owe—even if it’s a significant amount and very old. Even though you can usually expect your credit score to still go down as a result of unpaid debts, there are other benefits to consider when it comes to settling your credit card debt—even by settling for much less than what you owe. Without settling your debt, you face other consequences aside from poor credit, such as wage garnishment. In some cases, you may even be able to get the item removed completely from your credit report once you settle, assuming the creditor is willing to discharge the debt completely from your credit report.
The following tips can help you settle debt for less than what you owe:
Settle before your account is turned over to a collector
If you’ve just started falling behind on credit card payments, but the debt has already begun accumulating, take action quickly. You’ll want to try and settle the debt with your credit card issuer before your account is passed on to a debt collector. Once a collection agency owns your account, you’ll have two negative marks on your credit report—the second one being that you have an account in collections. If you’re hoping to save your credit score as much as possible, it can be done, even if you’re settling for less than what you owe—but it’s important to act fast. If you’re too late and you need to negotiate with a debt collector in order to settle your account, try and wait for the end of the month. Many debt collectors will have monthly quotas they need to meet, and may be more willing to make a deal with you if your timing is good.
Explain your situation
Whether you’ll be dealing with a debt collector or you’re directly contacting your credit card issuer, you might be asked about why you haven’t paid your bills, so be prepared to plead your case. Perhaps you lost your job and finding work has been difficult, or maybe you were in an accident and money has been tight because of all the medical bills you’ve been paying. Whatever the case may be, you’ll want to explain why you can’t afford to settle your account in full. If you’re facing significant financial difficulties, it’s important to explain this and explain why—the person on the other end of the line will likely sympathize, but also realize it’s going to be very difficult to recover the full amount owed, and will often take what they can get in order to settle the account.
Negotiate the settlement amount
Negotiating the settlement amount is usually easier when you’re dealing with your credit card issuer directly, but it’s not too late to try, even if your account has been sold to a debt collector. Keep in mind that debt collectors will frequently increase the overall amount you owe by rolling in additional fees and penalties. When you’re negotiating the settlement amount, you’ll want to start with your initial balance due and go from there, and not settle on the first offer that you receive. If money is really tight and you would prefer not to make a lump sum payment, you may be able to work out a monthly payment plan—but you can usually negotiate a lower amount if you’re willing to pay it all at once.
Get the agreement in writing
Once something is agreed upon, it’s important to get everything—the terms, the amount, and so on—in writing. Be sure that you get this written agreement before you pay anything, and make sure that the agreement states that you’re no longer liable for the debt once you pay the settlement amount. If you also negotiated to have the item discharged completely from your credit report, make sure this is also included in the written agreement.
Are you receiving structured settlement payments, but would prefer to receive your money sooner? Peachtree Financial Solutions may be able to help. Contact us today to learn more about selling some or all of your future payments for a lump sum of cash.
Nothing above is meant to provide financial, tax, or legal advice. You should meet with appropriate professionals for such services.