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Is Settling Credit Card Debt Possible?

You may have heard about credit card companies reducing balances by 50% and then thought “No Way! They won’t even budge on my interest rates.” If it’s often difficult to even negotiate the interest rates, is settling credit card debt for real?

The answer is Yes, settling credit card debt is very possible and in fact it’s happening every day. The Association of Settlement Companies (TASC) reported that member companies settle over $1 Billion in credit card debt annually. You can safely assume that at least $100 Million Dollars in credit card debt is being settled monthly since there are far more companies outside of TASC.

Why Would They Agree To Reduce The Debt?

Credit card debt is unsecured meaning there is no collateral backing the debt. On the other hand, secured debt has collateral attached to it so in the event the debt isn’t paid they’re able to repossess the property to recoup the debt owed. Secured debt is normally used for a mortgage or car loans. It is often much more difficult to negotiate secured debts because the value of the collateral will come into consideration. The creditor may find that repossessing the home or car will net them more money than negotiating any interest or balance reduction.

Settling credit card debt is much more likely to be successful because there is no collateral for the creditor. However, there are a couple things to consider when settling credit card debt:

    1. You Can’t Be Current On Your Payments If you are current there is no reason for your credit card company to negotiate a balance reduction. Being Current means they will make money… A lot of money. You can check your statements or use our credit card debt calculator to see how much minimum payments are actually costing you.
    2. Your Credit Score Will Be LowerSince settling credit card debt requires that you are behind, your credit score will be lower. However, how much lower depends on a few factors. Mostly, if your credit score is in the high 700’s in will drop lower than if you credit score is in the 600’s. For most people the debt settlement credit impact shouldn’t be much of an issue… it’s the debt that’s the problem.
    3. They Will Call You

Creditors will settle, but they much rather have you on the endless minimum payment plan. So to accomplish that they’ll call and try to convince you that swimming upstream is what you want!

This is an area that most people are anxious about. But really there isn’t much to it. You don’t have to speak with them if you don’t want to (If you’re trying to settle credit card debt, it isn’t recommended). Anything a creditor needs to tell you that’s important they’ll mail to you. Almost everything said over the phone is to pressure you to make a payment.

How Do You Settle Credit Card Debt?

Settling credit card debt isn’t just about asking or negotiating for the reduction. For those of us with thick skin, that’s the simple part. The challenge is:

  • Who To Call
  • When To Call
  • What’s a good offer? What’s a bad offer?

Who To Call:
“It’s not what you know, but who you know.” It’s an old, tired statement, but so true especially when it comes to settling credit card debt. You don’t just want to call the number on the back of your credit cards and ask “Can I pay you back half?” When one representative will say “No” or “80% is the best we can do in 1 payment”… there’s another that will negotiate on much better terms.

Credit card debt relief companies, like First Choice Debt Relief, often negotiate with the same representatives over and over. There’s usually an informal relationship between the creditor and First Choice. These collectors work on commission so the more accounts they can get payments on, the higher their commission. When we approach creditors, often times we do “bulk settlements” where we are settling thousands of dollars at one time. This means that representative is bringing the creditor a lot of money. And that’s where you can get some flexibility in negotiating.

When To Call:
Should you call and tell the creditor you’re about to fall behind so you can settle? This is probably NOT a good idea. In fact, it may put your account in the fast lane to being sent to a law firm. That means by negotiating too early or too late you may end up paying a lot more or it may even mean they will try to take you to court.

You see, creditors may tag your account early on indicating you want to settle and that tells them you have money, but it’s not going to them right away. If you’ve ever played poker, you know that you don’t want your opponent to know your hand until you’re ready to show them. Same thing applies to your credit card debt.

Another critical part in the timing is whether the credit card company should be called directly or is it better to wait until it goes to a third party collection company? With some credit card companies, it’s better to negotiate with them directly because they’re more likely to send it to a law firm. With other accounts, it might be better to wait for a third party company to receive the account and negotiate with them.

It can also get as detailed as knowing what state or county you’re located in since some credit card companies have in-house counsel in specific areas. If so, the chances of the account going to that department may be higher. In this case, you’d want to call much sooner and negotiate directly.

Overall, timing is something that can easily be overlooked since everyone is eager to settle and negotiate accounts quickly, but proper timing is key to maximize savings and lower risk.

What’s a good or bad offer?
Is a 50% reduction on the balance good? It might very well be, but first we need to know:

1) Which Creditor?
2) Is it with an outside agency? If so, which agency?
3) Which State? County?
4) What other credit card accounts can be settled?
5) How many payments are they requiring? 1, 2, or 6?

You see, what may sound like a great offer could turn out to be a horrible offer. Some creditors settle at 50%, some settle much lower like 20-30%. If the 50% offer is from a creditor that typically is more lax in collecting, you wouldn’t want to take the offer just yet if you have other creditors that are more aggressive. You may end up using your valuable saved funds for a non-aggressive creditor and then the next day the aggressive creditor sends a nasty letter that it’s been sent to a law firm.

If you have experience with negotiating, this is pretty simple to do since these situations are handled on a day to day basis.

Should I get help settling my credit card debt?

Absolutely. First Choice Debt Relief’s staff is working daily managing millions of dollars in credit card debt! We’ve seen every scenario front and back. Best of all our service has No Start Up Fees. No Monthly Fees. You have no risk in using our service.

You can submit for a free quote by using the form above or talk to one of our friendly and informed representatives by calling (800) 631-5573.