Thomas K. McKnight - Debt Settlement Lawyer in Santa Ana
The Basics of Debt Settlement
Debt settlement is an agreement between a lender and a borrower for a large, single payment toward an existing balance in return for the forgiveness of the remaining debt. Somebody who owes $10,000 on a single credit card, for example, 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 erase the remaining $5,000 still owed.
Why would a credit card provider voluntarily decide to give up a significant amount of the balance it is owed? It is generally because the lender is either strapped for cash or is fearful of your ultimate inability to repay the entire balance. In both situations, the credit card company is attempting to protect its financial bottom line-- a key fact to keep in mind as you begin negotiating.
Credit cards are unsecured loans, which means that there is no collateral your credit card company-- or a debt collector-- can seize to repay an unpaid balance.
While negotiating with a credit card provider to settle a balance may sound too good to be true, it's not. Not surprisingly, lenders don't like to advertise settlement, and although there are no independent statistics regarding success rates, the Federal Trade Commission (FTC) estimates that about half of debt settlement cases make it to completion. Still, if you're seriously behind on your payments and spiraling toward bankruptcy, your lender may agree to take what it can get, offering you one last chance to get back on your feet.
The Negotiating Process
Start by calling the primary phone number for your credit card's customer support department and asking to talk to someone, ideally a supervisor, in the "debt settlements department." Explain how critical your situation is. Highlight the fact that you have scraped a little bit of cash together and are wanting to settle one of your accounts before the money gets used up elsewhere. By mentioning 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 probably counter with a higher percentage or dollar amount. If anything over 50% is suggested, think about attempting to settle with a different creditor or simply put the money in savings to help pay future monthly bills.
Lastly, as soon as you have completed your debt settlement with your lender, be sure to get the agreement in writing. It's not uncommon for a credit card company to verbally agree to a debt settlement only to turn over the remaining balance to a collections agency. Make sure the written agreement clarifies the amount you have to pay in order to have your entire balance excused from additional payment.