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Debt Settlement of Credit Card Debt
You really have the upper hand in debt settlement of your credit cards. Do not go into the process meekly, and do not take no for an answer.
Credit Card Debt is Unique
Your mortgage and your car payment do not comprise debt on which you want to default. After all, actual assets back this debt, and your assets will be taken. Credit card debt, however, is different. There is no collateral involved; you have been given credit with the understanding that you will simply pay it back, and there is nothing the creditor can take if you don’t pay it back (see below for exceptions). You need to understand that this gives you a bit of an upper hand if you go into debt settlement of credit card debt.
What You Need to Know
- A credit card company is huge, and it makes its money by charging lots of interest and hoping that most people will make only the minimum payments each month.
- If you get behind in your payments, you can expect calls, sometimes daily. Do not tell a credit card company that you will be sending in your payment soon. Do not tell a credit card company that you can borrow the money from family members. Do not tell a credit card company that you will pay as soon as your tax refund comes in or as soon as you go back to work. This only motivates them to keep calling you!
- Do tell credit card companies that you are really broke and do not know when you will be able to make a payment. Do tell them not to call you at work.
- Most credit card companies will not negotiate with you if you are only a month or two late. Their “rule of thumb” is 60-90 days. So, if you really can’t pay, you are better off waiting those 60-90 days. As well, if a credit card company sees that you are paying other creditors on time, it will not be willing to negotiate.
- If you are not aggressive and assertive, you will be better off turning the
debt negotiations over to a professional. Consumer Credit Counseling Services is a great organization but it may not be as aggressive as some of the for-profit companies.
- If you are persistent and a good negotiator, most credit card companies will settle for a lower amount of the original debt, once you are 120 days behind. This is because they would rather get something than sell your debt to a collection agency. If, however, you have assets, which they can “attach,” chances are they will not settle. If they believe you have savings or investments, you are “dead” in the water. If they believe you might declare bankruptcy, however, they will be more willing to deal.
- If the debt has been turned over to a collection agency, the story is different. You need to know whether the debt has been assigned to the collection agency or whether the collection agency has purchased the debt (much more the norm today). You need to request validation of the debt as soon as you receive the first phone call from the collector. You will then know if the debt has been assigned or sold. If assigned, you really do not owe the collection agency, you still owe the original creditor; if sold, and you now owe the collector. If you now owe the collector, understand that the collector has purchased your debt, so you can negotiate for a low percentage of the original debt.