Can I Settle My Credit Card Debt Myself?

Key Takeaways

  • Financial hardship could make it possible to negotiate debt balances and pay less than the full amount owed.
  • Bankruptcy can wipe out unsecured bills, leaving creditors with no way to recover the debt. Therefore, creditors of unsecured debt are often willing to accept less than the full balance owed if you are unable to pay off the balance in full.
  • Professional debt settlement companies can help you negotiate debt for less than the full balance owed if you find the process intimidating or overwhelming.

You avoid calls because you don’t want to talk to creditors demanding payment on past due bills. A growing stack of bills collects and grows bigger each week. A sense of helplessness is constantly present until you realize you are unable to deal with the impending financial disaster and you eventually will be forced to face the situation head-on.

Even if you have missed a few payments or maybe even defaulted on accounts, there is hope.

When Should You Consider a Debt Settlement Program?

Carrying large amounts of unsecured debt is a sign of financial stress, even if you are making regular monthly minimum payments on all your accounts. Personal loans, credit card debt, payday loans, or medical bills all fall into the category of unsecured personal debt.

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The reality is that even if you could manage to keep up making the minimum payments on your credit card accounts, it could take decades to repay the large balances that carry high-interest rates and compound daily.

Are you barely making the minimum payment on your credit card accounts each month without seeing those balances decline?

Do you have consistent income, but not enough to pay down your debt and make a serious reduction in your balances in each month?

Do you find yourself making financial sacrifices and failing to set aside money for emergencies or retirement?

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If these circumstances describe your financial situation, it might be time to consider seeking the help of a professional debt settlement agency.

The Consequences of Debt Settlement

Creditors become more motivated to negotiate if you are behind on payments on your credit card accounts. Making the minimum payments on your accounts each month, even if it is detrimental to your finances, does not give creditors any motivation to cooperate. In fact, by doing so, you become their most profitable customer; paying thousands of dollars in interest each year that compounds daily and keeps you in a perpetual cycle of debt.

If you fall behind and begin to miss payments on your credit card accounts, you will see a temporary drop in your credit score, until you begin to make regular on time payments once again. The amount of decline of your credit score is dependent on several other factors related to your past credit history. If you have a few missed payments, or if you are carrying high balances relative to your credit limit on your credit cards, you are likely already negatively impacting your credit score.

Making late payments on your credit card accounts also means those balances will increase due to late fees, penalties, and additional accrued interest. Once you go 180 days without making any payments on a credit card account, and the account charges off, the interest charges and late fees stop accumulating, capping the growth of your balance.

Given the impact on your credit score, you should consider your need for credit over the next 24 months and have a plan in place to rebuild your credit after you have addressed the settlement of your debts. Leaving one credit card open and making on-time payments on a home or vehicle loan can effectively mitigates the damage and help to improve your credit score over time.

How to Negotiate Your Debt?

It is possible to a DIY approach to debt settlement. If you are comfortable negotiating and willing to deal with aggressive debt collectors, many creditors will work directly with you to resolve your accounts, however, you should have a strong working knowledge of the debt collection process and understand how much creditors are willing to settle certain accounts for an why.

The first step in the process of settling your debt yourself, is to talk to each creditor and gauge their willingness to negotiate. You should then make a list of all your accounts and ask each creditor for a current balance owed on the account and the date the last payment was made on the account. This information is very important in determining the age of the account and calculating the statute of limitations on your state under which a creditor may be able to sue you to recover the debt.

Have the ability to explain your financial hardship. It is important for your Creditors to understand why you are unable to pay the full amount. You do this by succinctly explaining your economic challenges. A loss of employment, an illness, or a reduction in income, are circumstances that could explain why you are unable to pay the account in full are all acceptable hardship reasons.

Take notes during every conversation. Notes help you evaluate offers and document promises made. Laws exist to protect consumers, so having a clear and concise record of all calls, dates, times and names of people you interacted with will help you document your conversations if challenged. Creditors who use threats or coercion could violate the law, and any debt collector who is deceptive when attempting to collect a debt violates the law as well.

Keep all correspondence, which might include letters, debt settlement offers, validation of debt, or legal action. Many communications or settlement offers submitted from debt collectors will be time sensitive in nature and may require you to act by a certain date. Be sure that you document all correspondence received, including letters, phone calls, emails or text messages and any payments or written communications between you and the debt collector. Be sure and keep a detailed communications log for each account which you are attempting to settle.

When to Get Professional Help Settling Your Debts?

Negotiating with your creditors to settle your debt can be overwhelming if you do not understand all the laws governing the industry and what debt collectors and creditors can and cannot do. You also may not know the most effective way to get the lowest settlement and other factors that could help you restore your credit faster.

Companies specializing in debt negotiation have long standing, mutually beneficial relationships with creditors. They understand the debt cycle and the best time and methods to get the lowest settlement. Each party in the negotiation also has an interest in a successful outcome of the debt negotiation. Debt settlement companies know the laws that apply to debt collection and understand how to respond to illegal debt collection efforts. Debt settlement companies also know which creditors are likely to initiate legal actions on different accounts and low a settlement they are likely to accept. This insider information can help you get the lowest possible settlement and pay off your debt much sooner than blindly trying to negotiate the settlement of your debt by yourself.

The lower the settlement you can negotiate, the sooner you will be able to pay off your high interest credit card debt and begin to restore your credit. Compared to filing Bankruptcy, most consumers who successfully settle their debts with creditors are able to begin restoring their credit in 3-4 years, compared to the standard 7-10 years a bankruptcy is reported on your credit file.

Frequently Asked Questions

Is it possible to negotiate a settlement of my debt with my credit card company?

Under some circumstances, credit card companies will negotiate and settle an existing debt for less than the full amount owed. The company must believe you are unable to pay and that it will cost more to collect through legal channels than it will cost to accept a lower payoff.

How much can I save by negotiating a settlement of my credit card debt?

Negotiating the settlement credit card debts could result in saving between 10 and 50% of existing credit card balances.

Do credit card companies forgive some or all your debt balances?

Credit card companies do not typically forgive credit card debt. However, in certain circumstances, they are willing to negotiate a settlement of your debt for less than the full amount you owe.