If you have fallen behind on your credit card payments or have discovered that your current financial circumstances will make it impossible for you to be able to repay the full balance, you may want to consider a credit card settlement. Although there is no guarantee that your creditor will agree to a settlement, it may be possible to save hundreds or even thousands of dollars and be worth a try.
Step 1
Allow your account to default. As odd as this may sound, many credit card companies will not consider any settlement options for accounts that are current.
Step 2
Choose the right time to make your offer. Your chances of having the credit card company agree to a settlement increases as time passes, but if you wait too long your credit will be damaged more severely, and there is risk of the credit card company charging off your account or even suing you for the balance. CreditInfoCenter.com says waiting until about 90 days past due is a good time to begin negotiation, and concluding the negotiation before the typical 150-day charge-off time period is ideal.
Step 3
Make your offer. You can do this by either calling the credit card company or by writing a letter. Briefly explain the reason why you are unable to pay your credit card bills and state the amount you would be willing to pay to settle the account. Although the amount you should offer will vary depending upon your financial situation and desires, CreditInfoCenter.com recommends starting at no higher than 50 percent of the total debt owned. When you make your offer, be sure to mention any other requests, such as the desire to pay the amount over several months instead of in a lump sum payment or that the debt be removed from your credit report in exchange for payment.
Step 4
Get the agreement in writing. Once you reach an agreement, make the creditor send you something in writing with a signature notating that they agree to the terms. This will prevent the creditor from attempting to take more than the agreed-upon amount from your bank account or try to collect on the balance of the debt on the account.
Step 5
Follow through. After sending the final payment for the agreed-upon amount, make sure you get another letter from the credit card company saying that the account is officially settled. Keep a copy of this letter for your records. Also, check your credit report to ensure that the account is showing that it is closed and settled or has been completely removed if that was one of the terms of your settlement agreement.
Tips and Warnings
- If the credit card company does not accept a settlement offer when you first contact them, wait another month and try again. Although this may do further damage to your credit, they may be more willing to negotiate with you at a later date. If you decide to communicate with the creditor via mail, send all letters via certified mail and with return receipt requested. This will provide proof of the dates of your correspondence. Keep all paperwork regarding the settlement organized and in a place that is easily accessible.
- In addition to doing some damage to your credit score, you may also need to report the forgiven amount of the debt as income when you do your taxes if you are not considered insolvent and the amount is at least $600, warns MSN's MoneyCentral.
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