When you find yourself deep in credit card debt and defaulted on an account, you may not know how to get yourself out of the hole you have dug. After a certain period of nonpayment, your account will be transferred to a debt recovery firm. If you do decide to try to settle with your credit card company, contact the collection agency directly. According to CBS News, if you use a debt settlement company, you are likely to be charged as much as 15 percent of the total debt amount.
Step 1
Determine how much you can afford to pay on this account. Before trying to reach a settlement, you have to make sure the money you plan to offer is available to you. It may be a good time to cash out any savings or bonds you may have.
Step 2
Send the collection agency a letter through certified mail. Correspondence should be done through the mail to have a physical record of negotiations. On the letters from the collection agencies, you will find their mailing address. In the body of your letter, make sure to include your name, full contact details and account numbers. Keep copies of the letters you send along with the letters you receive.
Step 3
Start with a low ball figure. According to the Credit Info Center, you should start by offering 25 percent of your total debt. Let them know you are unable to pay off the full amount due to financial hardship but have the ability to pay this amount.
Step 4
Wait to hear back from the collection agency. You are likely to receive a counteroffer. Negotiations may go back and forth for awhile until you both agree on a settlement amount. Once the amount is reached, send payment via money order or bank check within 90 days.
Tips and Warnings
- Keep in mind that settling your debt can adversely affect your credit. On your credit report, "Paid by Settlement" will appear, and your credit score will be lowered. If a company writes off more than $600, you are legally required to pay taxes on the forgiven debt.
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