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How do I pay less than full balance on my credit cards without declaring bankruptcy? Can I do this in a hardship program?

How do I pay less than full balance on my credit cards without declaring bankruptcy? Can I do this in a hardship program?
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Yes, you can pay less than the full balance on your credit card without declaring bankruptcy. And no, if you are in a hardship program you will pay the full balance of the debt.

Let us discuss hardship programs briefly first. Banks offer hardship programs to people experiencing financial distress. A hardship program reduces the interest rate and payment on an account during a time when a customer cannot afford the regular payments. Banks do not publish the terms and conditions of their hardship programs. Indeed, some banks will not even acknowledge publicly that they offer hardship programs. Therefore, the only way to learn if your bank offers a hardship program is to call the customer service department and ask.

See the resource Hardship Program to learn more.

Pay less than full balance

Many creditors will accept less than the full balance as payment-in-full. This is known as a settlement or resolution of the debt. However, you cannot simply ask the creditor to resolve or settle the debt for less than the full balance. To understand how to settle the debt for less than the full balance, we need to look an account from the creditor's perspective.

When a debtor stops paying on a debt, and the number of days since the most recent payment reaches 120 days, the account is no longer considered current, and the creditor is required to "write-off" the debt. Credit issuers are required to do this by the federal Office of the Comptroller of Currency, in an attempt to prevent banks from inflating future earnings statements with old and defaulted accounts. Writing-off a debt does not mean the debtor is no longer responsible for the debt, or that collection efforts cease, or that the debt is forgiven. The write-off date has no legal significance, and almost nothing to do with the statute of limitations for debts.

At the write-off point, the creditor discounts the value of the account and will transfer it to a late-accounts department. This is where the term "write-off" comes from. It also has the option to either assign or sell the debt to a collection agent. It is after write-off when debtors can start negotiations to pay less than full balance. However, keep in mind the collection agent has the right to collect the entire balance due plus interest.

Debt negotiation, also called debt settlement or debt resolution, is the process of negotiating with the creditor to either establish a new payment schedule at a reduced interest rate, or a lump sum payment that is significantly lower than the total balance.

Keep the following four thoughts in mind should you choose to settle a debt for less than the full balance.

 • The amount you can afford to pay. This should be a reasonable amount -- start with 40 cents on the dollar. Low-ball offers will be rejected immediately unless the debt is a second mortgage, which start at even less.

 • Creditors aren’t required to negotiate. They often will, if the next option is bankruptcy, but don’t expect them to make it easy for you.

 • Negotiation is a process. When you negotiate, you make an offer and your arguments. Expect them to make a counter-offer and counter-arguments.

 • You’re negotiating with a person. If you’re friendly and professional, they will be as well. Explain your situation in personal terms without becoming emotional. Listen to their arguments and answer them clearly. Your job is to convince them to see your side. Their job is to convince you to pay more. If you both play your roles properly, you’ll reach an agreeable settlement.

Debt settlement

To learn more about debt resolution including bankruptcy, read What Are My Debt Resolution Options?

One final thought: Although it might seem odd to pay a fee to save money, experienced debt negotiators will save you far more than the cost of their fee. They know which creditors are willing to negotiate and how much of a settlement they will accept. Due to their network of relationships, they can settle debts you couldn’t on your own. Visit the debt relief saving center to get no-cost, no-obligation quotes from pre-screened debt settlement service providers.

I hope this information helps you Find. Learn & Save.



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  • JV
    Jun, 2012
    Thank you for the clear and concise article. I believe your advice will be helpful. I was most curious to know the starting point (40 cents on the dollar) for negotiating. Your points on demeanor were also well made.
    • BA
      Jun, 2012
      Debt settlement amounts fall into a bell curve. The largest part of the curve falls between 40 and 60 cents on the dollar.