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Citibank Credit Card Settlement

I settled a lot of credit cards these past 4 years, but I am having some trouble with Citibank. Any advice?

I have had a card with a balance between $13,000 and $14,000 for over 4 years. It was sent to collections 3 years ago. I have settled all other credit card accounts, however, this one company (CitiCard) has offered a settlement and then upped the amount at the beginning of the new year putting it out of reach. At this point, I've paid a few payments of $300.00 to keep fees from racking up but a recent set back caused me to ignore their calls in the past two months. They say they can't accept those sorts of payments forever. I'd like to settle with them but for the original settlement offer (50% vs. the 70% offer they upped it to this year). Should I go ahead and call them or wait until closer to the end of the year? I really need a few months to get enough together for a settlement as I have little extra cash. After having settled $41,000 in debt with other accounts within the last year, this one is hanging out there with no end in sight. I no longer use cards, however, I can't move ahead with this one hanging out there for $14,000. I ended up racking up this debt when my fiance lost his job the day our son was born. I am not debt savvy and often get intimidated into things that really unless I agree to them the company can't make me do, etc. I need some advice.

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Bill's Answer
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Updated: Oct 23, 2014

Citibank Debt Settlement
Highlights

  • A 50% debt settlement amount is an average amount.
  • Citibank has a reputation for sharp negotiation policies.
  • Don't let strong-arm tactics deter you from your goal.

Settling with creditors can be an excellent way to resolve outstanding debt. Unfortunately, debt settlement can also be a complicated and sometimes difficult process involving multiple rounds of negotiations, strict due dates, and of course, the need to raise the money to actually pay the settlement. Thankfully, you already have a good bit of experience in negotiating with unsecured creditors.

Congratulations on your reaching settlements with your other creditors. Settling $41,000 in debt is quite an accomplishment. After negotiating on so much other debt, settling with Citibank on this final account should not be too much of a challenge, though I will admit that Citibank can be difficult when it comes to accepting settlement offers. Regardless of this reputation, I have seen Citibank settle with consumers on reasonable terms on many occasions, so you should not allow the bank’s current demands to force you into a less favorable agreement.

Quick tip #1:

You can negotiate settlements on your own, but may be better served having a professional negotiator work on your behalf. Speak with a pre-screened debt relief provider, to hear how a professional debt relief firm could assist you.

Settlement Percentages

It is not uncommon for creditors to change their internal settlement parameters from time to time. Therefore, it does not surprise me that Citibank's 50% settlement offer changed at the beginning of the year to the higher 70% offer. But these periodic changes can also go in the other direction, so even though they will only accept 70%, their guidelines could change again next month, allowing for the 50% offer to be accepted. You should continue to communicate with Citibank to express your desire to settle this account, but to also insist that you cannot settle for more than the 50% previously offered.

Be Ready to Pay

As far as the funding of the settlement, you should certainly try to raise the necessary funds as soon as possible to be prepared if Citibank does decide to accept your offer. Many creditors request payment within a relatively short time frame once a settlement is agreed upon; however, I would still continue to communicate with Citibank as long as you think that you can raise the funds needed to pay the settlement, if accepted, within a couple of months. You probably should not call Citibank and make offers that you cannot realistically afford to pay. If Citi accepts your offer and you are unable to pay the settlement, it could damage you ability to negotiate with them in the future.

Structured Settlements

In some cases, creditors  agree to a settlement will allow 30 to 60 days or more to finalize the payment of a settlement amount, as long as a significant portion of the settlement can be paid soon after the agreement is finalized. Creditors may also be willing to take the settlement amount in payments that are spread out over a number of months. This is called a structured settlement.

Don't be Intimidated

The key to successfully negotiating with your creditors is not let strong-arm collection tactics intimidate you and pressure you into accepting an agreement which you cannot afford or which you do not feel is in your best interest. Many people choose to hire a third party debt negotiation firm to work with their creditors on their behalf because it is much easier for a third party representative to remain emotionally detached from the situation. Working with a professional debt settlement firm is even more attractive now that you can find a reputable firm that charges no-upfront fees. You won't have to pay anything for the firm's services, until after one of your accounts is settled.

Next steps

You should focus on your goal of settling the account and keep in mind that much of what collectors will tell you is designed to frighten and upset you, which can make it easier for the collectors to force you to make a decision that may not be in your best interest.

This account is large, and you could very credibly state that a Chapter 7 bankruptcy is not out of the question for your situation if Citibank will not agree to settle this account for an amount that you can afford. You may wish to tell them that you had to scrape up the money to meet the 50% offer and you have exhausted all of your financial resources. Once you reach an agreement with the creditor, make sure that it sends you a copy of the terms in writing before you make payment.

If you would like to learn more about negotiating with your creditors, I invite you to visit the Bills.com Debt Negotiation and Settlement page.

Additional resources

I have answered other reader questions regarding Citi credit card accounts. See Renegotiate Citi Credit Card Settlement Agreement to understand your options if you have a settlement agreement with Citi you can no longer afford; Citibank Hardship Program for tips on how to enter Citibank's credit card hardship program; Negotiate Citibank Debt to learn what to expect when negotiating debt with Citibank; and Citibank Settlement for ideas on how to negotiate with a collection agency that owns a Citibank collection account, and Consolidating Citi Credit Card Debt.

I hope that the information I have provided helps you Find. Learn. Save.

Best,

Bill

bills.com

46 Comments

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  • JH
    Jan, 2013
    ji
    I have been calling and sending a bunch of mails to Citi cards about my debt settlement, and not getting any answers from Citi cards. What should I do now?
    0 Votes

    • BA
      Jan, 2013
      Bill
      The next time you speak to someone at Citi, ask to be connected to the department that negotiates delinquent credit card accounts.
      0 Votes

  • JB
    Sep, 2012
    Jackie
    As I learn through my mess, I believe maybe the best way out of credit card debt is you take them to small claims court. Inform the judge you tried and the judge may go your way or just set up payment at 9%. I bet 25% payments.
    0 Votes

  • EZ
    Jul, 2012
    eco
    I do not know why all these middle-man make settlements sound so complicated. It is very simple. If you are not late, no one will settle. Period. The more past due your account, the more they are willing to settle (up to 6 month late). Settling for 60% of the sum is a high-way robbery. You do not need any agency to settle and can do it yourself for 25%-45% of the amount. Further, Citi is willing to spread the sum over 12 payments. AmEx does it over 24 months, but some banks can do it only over 90 days. Some people settle for less than 25% but it is rare. I settled myself for as little as 28% and as high as 50% (the latter with Capital One, who is notorious to sue in the local court) and I helped my friends settle too. It is simple, painless, business like process. Only debt-settlement agencies make it sound like nightmare because they pocket a big cut to themselves.
    0 Votes

    • BA
      Jul, 2012
      Bill
      Thank you for your input and advice about debt negotiation. However, being late is not a sufficient condition to reaching a settlement with a creditor. Creditors can, and do, pursue court judgments against delinquent debtors. A judgment can lead to wage garnishments, bank levies and liens on personal property. Pursuing a debt is a business decision. A creditor might pursue a law suit, make a settlement or sell the "bad debt."

      Debt settlement is not the preferred debt relief option for all people with debt problems. I recommend that a person facing debt problems educate themselves and start by reading the Bills.com about Debt Relief.
      0 Votes

    • JB
      May, 2013
      Justin
      Capital One was terrible to work with. They sent out Court Ops to my parents house three times trying to find me and serve me. When they finally agreed to settle it was for 65% of my balance. What's unfortunate about it is they actually made me sign a stipulation letter to see what they could do for me. So, I came up with the settlement amount. Key with Capital One you need to act sooner than later. It went through three agencies and the last agency was an attorneys office. With the two previous collection agencies they were both offering 50% (which I didn't pay because I thought i'd get better in a year.) I didn't because it went to the attorneys office and they would rather garnish me or go for a default judgement.

      Chase was super easy to settle with 18%

      Home Depot 25%

      Lowes 33%

      Wells Fargo 17%

      Citi just offered me 25% on a balance of $7,500. I'm going to shoot for $1,500 and hope they accept. I'll offer $1,200 and see if they will counter at $1,500 and take them up on the offer.

      Good luck!
      0 Votes

  • TF
    Jul, 2011
    Tim
    I am current on my Citibank Card. Since they won't settle on the principal because of being current, why does it make sense to even attempt to settle at all? For instance, assume $40,000 debt.
    • 12 months late fee until they settle @ default rate 29% adds additional $11,600
    • Total upon settlement $51,600
    • Citi settles for standard 60% - upfront fee of $30,960
    • Citi 1099's for 20,640 - IRS/State bill of 20% = $4,128
    • Settlement cost 30960 + 4128 = $35,088

    The sum of all this being that only $5k is being saved, with a lot of hassling phone calls and still end up with bad credit. Can you address please, how often they file suit to get a judgment? At this point, since bad credit and harassing phone calls will happen either way, it appears best to just walk away from the debt and not work on a settlement.

    1 Votes

    • BA
      Aug, 2011
      Bill
      The answer to your central question will vary based on many factors. One of these is whether you hire a debt settlement firm or try to negotiate on your own. Another factor is your liquid assets and income, and how much you can afford to pay today. Typically, it is much harder to settle at a deep discount if creditor believes a consumer possesses the assets to pay the debt in full.

      I disagree with several assumptions in your comment:
      • Typically, the default rate (the 29% you quoted) only lasts 6 months, until the debt charges off. After that, there is a statutory limit on penalty rates that varies by state. Let's assume 9% after 6 months as a placeholder — so the total would be $48,491 rather than $51,600.
      • A good debt settlement firm will usually negotiate a 45% settlement rate with Citi and not 60%. However, this is an average, and with an account this size, the creditor is more likely to pursue it aggressively (including via litigation). Thus, 60% may be a reasonable assumption. In addition, 60% is probably reasonable if you are put on a long-term payment plan (after all, if you have $30k to pay toward the debt today, you probably wouldn't be considering settling at a discount).
      • Citi may issue a 1099-c for the amount of debt forgiven. The actual tax burden will vary based on each person's individual tax situation. Some debt settlement clients are insolvent and so pay little or no tax on the debt forgiveness. (We discuss this in the Bills.com resource Cancellation of Debt Income.)
      • If you hire a debt settlement firm, there will also be fees paid to the company doing the negotiating.

      Your question on lawsuits is difficult to answer because the process creditors use to decide who to sue and who to ignore is opaque. Credit card companies litigate a small fraction of outstanding accounts. However, an important factor is the size of the debt, because large debts are more likely to offset the time and cost of litigating. With a debt this size, a creditor like Citi is probably going to be more likely to consider litigation.

      Whether it makes more sense to settle or just "walk away." With a debt this size, I doubt you will be able to simply walk away. Citi will certainly pursue collections, which means a collection agency or law firm will try hard to collect on it. There is a slim chance you can ignore it and pay nothing. If you cannot pay anything toward this debt, consider bankruptcy, but obviously this path has consequences.

      Finally, you argue $5,000 is being saved vs. paying in full. This is true if you have $40,000 to pay the debt today. However, in your settlement example, you have not made any payments on the account for a year. To pay off a debt in full making minimum payments, it will often cost two to three times the face value of the debt today. That is, if you continue making minimum payments (or slightly more) on the debt, it is likely to take 5 to 15 years, and cost $80,000 to $120,000 before the debt is paid. Settling the debt may not save a lot over the face value of the debt today. However, it is probable it will save you a great deal in total cost vs. your alternatives.

      Before choosing a course of action, evaluate your financial situation in full and the total costs of each option. The Bills.com Debt Coach can help you decide the best option for you based on your goals and available resources.

      0 Votes

  • AT
    Jun, 2011
    Aubrey
    Hi! I have a question. I am in debt with Citi for $4,000. They offered a settlement to me for $2000.I called them and want to take the settlement, but they refuse to allow me to do it in payments. They have also declined a payment arrangement because they said they already gave me one. I lost my job and couldn't afford to make the payments so I had to stop. I am trying to work with them again to start paying, but they said they'll either take the settlement in one lump sum, or I will be sent off into collections, because they cannot offer me any payment arrangements. I feel like I am stuck between a rock and a hard place. The lady on the phone asked if I could borrow the money, but there is no one who will lend me $2000 just like that. Any advice would be greatly appreciated.
    0 Votes

    • BA
      Jun, 2011
      Bill
      Readers, please offer your solutions for this dilemma, and the negotiating tactics you found successful for resolving this type of situation.
      0 Votes

    • AT
      Jun, 2011
      Aubrey
      Yes thank you! I even called them back and spoke to 3 different reps, and the answer was the same. They will not offer any payment arrangements. I would have to pay them $300 a month. She said the date my account is set to be charged-off is 07/11/2011. My mother told me that under laws, they have to accept payments that you offer to them, because you are trying to make right on a debt. But, I don't know how true this is. I told them that they will just send my account to a collection agency because I'm trying to pay them and they are refusing to accept. I guess there's nothing else I can do.
      0 Votes