Determine Who Will Settle
The settlement process usually begins by determining who will be controlling and negotiating the settlement with the credit card companies. There are many debt settlement companies that have been around for a long time and have already built a good relationship with creditors, a feature which will serve well when negotiating a settlement. All debt settlement companies will charge a fee for service, but some will have higher fees, as well as hidden fees, so it is wise to research what your obligations are before choosing a company. When considering a company, it is smart to do some homework to learn if the company under consideration is a good or a bad one.
The alternative to using a debt settlement company is to try settling on your own. While it may require more effort on the debtors part, it may save the money paid in fees and it is certainly a feasible option.
Begin a Settlement Fund
The next step in settlement is starting a settlement fund, regardless of whether you are settling on your own or with the help of a company. This settlement fund is a separate account where money is set aside each month, as opposed to being put toward credit card payments. Often settlement companies will draw their monthly fees from this fund for the duration of the settlement. While this money builds up each month, creditors will inevitably call and write in an attempt to receive the money that hasn't been paid to them each month. It is usually advised that all attempts to collect be ignored throughout this period. During this time, creditors will also make reports to credit bureaus that will have a negative impact on credit scores.
Settling the Debt
After a period of receiving no payments from the debtor, creditors are more willing to settle on one lump-sum payment as an alternative to receiving no money at all. Whomever is negotiating the settlement will begin to discuss the settlement amount at this point. Often, accounts are settled at 25 to 50 percent of the amount owed on the account. Once the settlement amount has been negotiated, it is paid by the debtor in full as one large payment. The account will then show on credit scores as "settled in full," or sometimes "paid in full," depending on the creditors preference.
For those settling multiple accounts, the cycle begins again with adding funds to a settlement account, negotiating the settlement amount and paying that amount until all accounts have been settled.
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