- 5 min read
- You can settle your debts on your own, if you have the right skills.
- Use a professional debt settlement firm, if you don't have the confidence to do it yourself.
- Only work with a debt settlement firm that does not charge fees up-front.
How to Settle Credit Card Debt on Your Own or With Professional Help
There are different ways to handle a credit card problem. The best way depends on many different factors, such as your income, cash-flow, credit score, assets, and how serious your problems are.
If your debt problem is serious and you can't afford to increase your monthly debt payment or consolidate debt through a cash-out refinance loan or an unsecured personal loan, you have to look for other solutions.
One effective way to resolve a credit card debt problem is to negotiate reduced payoffs with your creditors. If you decide to try this, then you have to figure out how to settle credit card debt the best way.
Debt negotiation is also called debt settlement. It involves you, or a firm that you hire, contacting your creditors and negotiating to pay less than you owe and still bring the debt to a $0 balance. Creditors are not willing to settle everyone's debt, so you have to show your creditors a reason why they should be willing to accept less than the full amount owed. If you don't approach your creditors the right way, you won't succeed in reaching a negotiated settlement.
If your debts are overwhelming you, contact one of Bills.com's pre-screened debt providers for a free debt relief quote.
Basic Tips: How to Settle Credit Card Debt Effectively on Your Own
- Must be Delinquent- If you are paying your bills each month, even if you pay late, the creditor has no incentive to settle with you. When you break the monthly payment relationship, you give your creditors the message that no more payments may be coming. This can cause creditors to look at a settlements as the best way for them to get as much money as possible, while avoiding the expenses of pursuing aggressive collection
- Demonstrate Hardship- If you can show a real reason for why your creditors should not expect you to be able to keep paying, you greatly increase your chances for a settlement. A loss of income due to job loss, serious illness or divorce are reasons creditors can understand. It is not a lot different than if someone owed you money and wanted to settle. If you felt he or she could afford to pay, would you want to accept a settlement?
- Don't Discriminate- Your creditors all have access to your credit report. Before agreeing to a settlement, they are going to review your report to learn about your situation. If a creditor sees that you pay every other bill on time, but want to settle your account with them for less than you owe, don't expect to succeed.
- Be Persistent- Don't give up, if the first answer you hear is, "No." Your creditors will make more money off of you, if they can get you back into the monthly payment cycle. If you have a legitimate hardship, keep presenting as much detailed evidence that demonstrates it as you can. Ask to go up the chain of command, as the person you speak with, especially on the initial call you make, may not have authority to approve a settlement.
- Be Strong- Don't expect your settlement conversations to go smoothly. Your creditor has every right not to settle. The representative may emphasizes the fact that your account will be moved into the legal collections department. Creditors can't make threats against you, unless they plan to follow through on them. However, they can tell you what possible actions they can take against you, such as suing you and working towards garnishing your wages.
How to Settle Credit Card with Professional Help
Not everyone is equipped with the skills to negotiate on their own behalf. It is easy to be intimidated by a creditor. If you don't have experience dealing with creditor collection departments, each conversation can be very stressful and nerve-wracking. Even if a settlement is offered, you don't know whether it is a good deal. You may need the help of a professional debt settlement firm.
The key to settling your debt with professional help is to find a reputable debt settlement firm you can rely on. Since 2010, it has become easier for you to find a quality firm to work with. In late 2010, the Federal Trade Commission (FTC) banned settlement firms from collecting fees from you before they settle your accounts. This change resulted in a huge drop in the number of firms that offer professional debt settlement help.
Not every company that remains is trustworthy. Some still try to collect fees from you in advance. But, if you take the right steps, you can find an experienced, reliable company to work with.
- AFCC Membership- The American Fair Credit Council is the leading consumer credit advocacy (also known as debt settlement) industry trade group. The AFCC polices its members, to ensure they stick to the AFCC's strict code of conduct. In addition to forbidding its members from collecting advance fees, the AFCC requires a transparent presentation that discloses the risks of debt settlement, as well as its rewards.
- Long History- You're best off with a debt settlement firm that has a long, demonstrated track-record.
- Low Pressure- Don't let your stress lead you into working with a company that bullies you. Any firm that acts as if it is your only lifeline is trying to take advantage of you.
- The Time You Need- Don't work on a salesperson's timeline. The words, "You need to have the paperwork back to me today," are a red flag. You may want or need to take quick action, but it is your choice. Make sure you take time to think over your choice.
- Honest Presentation- An honest presentation of debt settlement should lay out the negatives you face. Even if it is the cheapest, fastest way out of debt while avoiding bankruptcy, you need to hear about how it harms your credit score and the collection efforts a creditor can pursue.
- A Company You Can Trust- Make your decision based on which firm you believe will get you to the finish line. Don't go with whoever quotes you the lowest monthly payment. The lowest payment means you are signed up for a longer program, which entails greater risk. Also, an trustworthy settlement firm bases your total cost estimates on historical data. Avoid a settlement firm that acts as if every creditor will settle for the same amount.
Did you know?
Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q3 2023 was $17.291 trillion. Auto loan debt was $1.595 trillion and credit card was $1.079 trillion.
A significant percentage of people in the US are struggling with monthly payments and about 26% of households in the United States have debt in collections. According to data gathered by Urban.org from a sample of credit reports, the median debt in collections is $1,739. Credit card debt is prevalent and 3% have delinquent or derogatory card debt. The median debt in collections is $422.
The amount of debt and debt in collections vary by state. For example, in North Carolina, 33% have any kind of debt in collections and the median debt in collections is $1570. Medical debt is common and 20% have that in collections. The median medical debt in collections is $742.
Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.