Credit Card Debt Settlement – How To Do It Yourself

how do credit card settlements work

By: Brooke Kaelin

If your credit card debt has been sold or outsourced to a collection company and you want to make a settlement then there are a series of simple steps you can follow to have the best chance of success.

1) Get your paperwork together – You will need a copy of your latest bill from the collection agency. This will tell you exactly how much you owe, including any fees or interest that has been added on by the original bank, and the collection agency.

2) Know what you can afford to pay – The goal when making a settlement is to reduce your total amount of the debt you owe by 30% to 50%. You will have to have this amount all at once, or be able to come up with a specific payment plan. If you choose a payment plan you can never miss a payment or all agreements are off.

3) Call the collection company – Be aware that the first person you speak to may not be able to arrange a settlement for you. It may require speaking to a manager, or even a different, more helpful collections representative. Just know going into it that it’s an uphill battle, but it can be won. Be calm, patient and firm.

4) Do not tell them you have no intention of paying the debt – If they make you mad, or you don’t intend to pay until they do agree on a settlement, do not verbally tell the collection company this. It’s know as “a refusal to pay” and it puts you on the shortlist for a lawsuit. If the current collections rep won’t help you, tell them you do intend to pay the debt, but you can’t pay that amount. Keep asking them for a settlement, or for a manager.

5) Once you reach someone reasonable – Work out a plan that you can live with. At the very least you can expect to have all late, over the limit and / or membership fees removed from the total amount of your debt. Start by offering 35% to 40% of what you owe. If they take it, great. If they don’t slowly work up to a number that both you and the collection company can live with. Most likely you can expect to have about 35% knocked off the total. If you are willing to push it, and put off paying the debt a while longer, you may be able to negotiate for better terms.

6) Consider a credit counseling agency – There are a lot of fraudulent credit counseling services out there. If you take the time to do your research, and work with professionals, then they may be able to negotiate a better settlement that you could on your own. Obviously the more you owe, the more this tactic could benefit you. For more information on how to choose a credit counseling agency, you can check out the following articles.

7) Get it in writing – Explain to the collection agency that you will be happy to agree to a settlement for X amount, but that you must have the agreement in writing. If they refuse to do this they are trying to cheat you – pure and simple. Putting things in writing is a standard part of a settlement agreement. Most collection agencies fight the “put it in writing part” because they know that if they can get you to give them money today, and they keep no written record of any

“agreement” then it’s just the same as if it never happened, and you still owe the full amount no matter what was said.

So, get it in writing before you make a payment.

8) Keep a careful record of who you speak to – Write down the date, time, name, and operating number of anyone you speak to. You may need to reference it later. If you are having success dealing with a specific person, ask them for a direct line so that you can call them back if you have questions.

9) Once you have the settlement agreement in writing, keep up your end of the bargain. If you promised to pay on a set schedule, then make sure you do. If you default on the agreement, then you are back to square one and the interest and everything else will be tacked right back on.

10) Get it in writing again – Once you have paid down your debt as agreed, keep calling the collections company back until you reach someone who can send you a letter in writing that says you have paid your debt in full. I cannot tell you how many people have made agreements, paid as they should, forgot about it, and then found themselves in court a year later. What happened in that case is stupid, but simple. The collection company re-sold the part of the debt that they “removed” from your settlement offer. If you never got a letter stating that the debt was paid in full, then you have no proof that it happened as agreed. You can fight it in court of course, but it is so much simpler if you just demand the letter of payment until you get it.

11) Check your credit report – Once you are finished wrangling with the collection company and have emerged victorious, check all three of your credit reports. (You can do that for free by going to Annual Credit ). Give it two or three months after your settlement before you check. This gives everyone, including the credit bureaus time to update your records.

What are you looking for?

  • You want to make sure that your debt has been listed as paid. It is not unusual for a collections company to not bother changing the way the account looks on your credit reports.
  • You are checking to make sure that your original lender is not still reporting that you owe the debt

In either of these two cases, your settlement agreement, and your letter of payment-in-full will serve as proof for you. If you do find something incorrect, you can challenge these items on your credit report, send in your evidence, and have the accounts updated correctly so that they do not continue to hurt your credit score.

If this process becomes overwhelming for you at any point, and you feel like you would rather ignore it than move forward, then the very best thing you can do is to seek the services of a qualified credit counseling service. They do this stuff all day long. And they don’t have to take it personally, because to them its a job. To you, it’s your life, it’s your debt, and it’s your family they are harassing with constant calls. Getting help is certainly a better option than allowing the situation to get worse, or cause you further stress.

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