The Basics of Debt Negotiation
Debt settlement is an agreement between a lender and a borrower for a large, single payment towards an existing balance in return for the forgiveness of the remaining debt. Somebody who owes $10,000 on a single credit card, for instance, might approach the credit card company and offer to pay $5,000. In return for this single payment, the credit card company agrees to forgive or remove the remaining $5,000 still owed.
Why would a credit card company voluntarily choose to give up a considerable amount of the balance it is owed? It is generally because the lender is either strapped for cash or is afraid of your ultimate inability to repay the entire balance. In both situations, the credit card provider is trying to protect its financial bottom line-- a key fact to remember as you begin negotiating.
Credit cards are unsecured loans, which means that there is no collateral your credit card provider-- or a debt collector-- can seize to repay an unpaid balance.
While negotiating with a credit card company to settle a balance might seem too good to be true, it's not. Not surprisingly, lenders do not like to promote settlement, and although there are no independent statistics regarding success rates, the Federal Trade Commission (FTC) estimates that around fifty percent of debt settlement cases make it to completion. Still, if you're severely behind on your payments and spiraling toward bankruptcy, your lender may agree to take what it can get, providing you one last chance to get back on your feet.
The Negotiating Process
Start by calling the main phone number for your credit card's customer support department and asking to speak to someone, preferably a supervisor, in the "debt settlements department." Explain how critical your situation is. Highlight the fact that you have gathered a small amount of money together and are hoping to settle one of your accounts before the money gets spent elsewhere. By stating the fact that you have multiple accounts on which you're seeking debt settlements, you're more likely to receive a competitive offer.
Offer a specific dollar amount that is approximately 30% of your outstanding account balance. The lender will most likely counter with a higher percentage or dollar amount. If anything over 50% is proposed, consider attempting to settle with a different creditor or just put the money in savings to help pay future monthly bills.
Last but not least, as soon as you have finalized your debt settlement with your lender, make sure to get the agreement in writing. It's not unusual for a credit card provider to verbally accept a debt settlement just to hand over the remaining balance to a collections agency. Make sure the written agreement spells out the amount you have to pay in order to have your entire balance excused from further payment.