how to make settlements with credit card companies

1. Decide what you can offer to pay. Before trying to settle your credit card debt, you need to decide what you can afford.
2. Make a reasonable offer. If your offer is too small, the company is not likely to accept it, but if you offer too much, you run the risk of ...
3. Realize that a settlement could well impact your credit score negatively. Anything other than full, on-time payment will hurt your score to some extent.
4. Address the letter to the proper office. Find out which office of the credit card company handles settlement offers.
Clearly identify the account that you are discussing. At the top of your letter, below the address, you should state the account number.
Explain your predicament. Avoid getting emotional about the problems in your life, but you should explain your reason for needing to settle your debt.
State your offer clearly. Provide a precise statement of the amount you're offering to pay. ...
Provide a date for a response. At the end of your letter, ask the company to respond to you by a particular date.

Full Answer

How to negotiate credit card debt settlement by yourself?

How to negotiate credit card debt settlement yourself step-by-step Step 1: Define your goals. All debt settlement negotiations start with an offer – either a collector reaches out to you or you reach out to a creditor. It’s important when trying to negotiate a settlement that you have realistic goals.

How do you settle credit card debt yourself?

What to Do to Settle Credit Card Debt

• Mobilize’em Up! This is the first step in settling credit card debt yourself. ...
• Determine Your Fiscal Health! Whatever negotiations you are thinking of, you need to analyze and determine your financial position!
• Negotiating Techniques. You can now move on to negotiate the debt. ...
• Settle It Once and For All! ...
• Document the Deal! ...

What is the credit card settlement process?

• Drop in credit score (up to 100 points)
• You need enough cash on hand for a settlement payment
• Only available for unsecured debt
• You pay tax on the forgiven portion of debt
• Risk of lawsuit
• Creditors might not settle
• Settlement stays on credit history for 7 years
• Calls and notices from collections increase (during process)

More items...

Do it yourself debt settlement?

With do-it-yourself debt settlement, you negotiate directly with your creditors in an effort to settle your debt for less than you originally owed. The strategy works best for debts that are already delinquent. Creditors, seeing missed payments stacking up, may be open to a settlement because partial payment is better than no payment at all.

What percentage will credit card companies settle for?

Typically, a creditor will agree to accept 40% to 50% of the debt you owe, although it could be as much as 80%, depending on whether you're dealing with a debt collector or the original creditor. In either case, your first lump-sum offer should be well below the 40% to 50% range to provide some room for negotiation.

How do credit card companies settle?

What is the credit card settlement processVisit the issuer or a debt settlement agency.Explain your inability to make payments via a credit card settlement letter and mention that you're open to negotiating other repayment terms.Offer a lump sum or inform the issuer of your plans to file for bankruptcy.

Is settlement of credit card is good idea?

It is always better to pay off your debt in full if possible. While settling an account won't damage your credit as much as not paying at all, a status of "settled" on your credit report is still considered negative.

What percentage should I offer to settle debt with collection agency?

Start by offering cents on every dollar you owe, say around 20 to 25 cents, then 50 cents on every dollar, then 75. The debt collector may still demand to collect the full amount that you owe, but in some cases they may also be willing to take a slightly lower amount that you propose.

Is it better to settle or pay in full?

Settling for Less Can Relieve Stress And it's important to know that paying your debt in full is the better option when it comes to your credit. If you can't pay in full, settling is better than defaulting on your debt and may relieve some stress for you.

How do you negotiate a credit card payout?

Tips for Negotiating Credit Card Debt Continue making notes as you negotiate. Note down the exact amount owed and the duration you have in hand. Request to negotiate with debt settlement department of the credit card issuing company. Continue to negotiate until you reach the amount you can afford to pay.

How many points does a settlement affect credit score?

Debt settlement practices can knock down your credit score by 100 points or more, according to the National Foundation for Credit Counseling. And that black mark can linger for up to seven years.

How do I raise my credit score after a settlement?

How to Improve CIBIL Score After Loan Settlement?Build a Good Credit Repayment History. ... Clear off Pending Dues. ... Manage Credit Cards Better. ... Apply for a Secured Card. ... Credit Utilisation. ... Do Not Raise Frequent Loan Queries. ... Apply for a Secured Credit.

What is a reasonable full and final settlement offer?

It depends on what you can afford, but you should offer equal amounts to each creditor as a full and final settlement. For example, if the lump sum you have is 75% of your total debt, you should offer each creditor 75% of the amount you owe them.

What is the 11 word phrase to stop debt collectors?

If you need to take a break, you can use this 11 word phrase to stop debt collectors: “Please cease and desist all calls and contact with me, immediately.” Here is what you should do if you are being contacted by a debt collector.

Will debt collectors settle for 30%?

Lenders typically agree to a debt settlement of between 30% and 80%. Several factors may influence this amount, such as the debt holder's financial situation and available cash on hand.

What happens if a debt collector won't negotiate?

If the collection agency refuses to settle the debt with you, or if the agency or creditor agrees to settle, but you renig on your end of the agreement, the collection agency or creditor may decide to pursue more aggressive collection efforts against you, which may include a lawsuit.

What happens if I settle a credit card debt?

When you settle an account, its balance is brought to zero, but your credit report will show the account was settled for less than the full amount. Settling an account instead of paying it in full is considered negative because the creditor agreed to take a loss in accepting less than what it was owed.

Are credit card companies forgiving debt?

Most credit card companies are unlikely to forgive all your credit card debt, but they do occasionally accept a smaller amount in settlement of the balance due and forgive the rest. The credit card company might write off your debt, but this doesn't get rid of the debt—it's often sold to a collector.

What is a reasonable full and final settlement offer?

It depends on what you can afford, but you should offer equal amounts to each creditor as a full and final settlement. For example, if the lump sum you have is 75% of your total debt, you should offer each creditor 75% of the amount you owe them.

Will settling a charge off raise credit score?

Paying a closed or charged off account will not typically result in immediate improvement to your credit scores, but can help improve your scores over time.

How to negotiate with credit card companies?

Be Persistent and Document Everything. If you want to negotiate with a credit card company, the process usually begins with a phone call. However, it may require long conversations with multiple people over days or weeks.

What is the worst scenario for a credit card company?

Absent some sort of unique set of circumstances, a bankruptcy filing would be the worst-case scenario for the credit card company because it stands to lose everything it has extended you. It means that they may be willing to forgive a large portion of the debt balance in hopes of getting back something rather than nothing.

What Happens to Credit Card Debt When You Die?

Credit card debt is paid off by your estate after you die. In other words, the debt will be subtracted from anything you intend to pass onto heirs. Your estate executor will use estate assets to pay down the debt. After your debts are settled, your remaining assets will be passed onto your heirs.

How Do You Consolidate Credit Card Debt?

There are many ways you can consolidate credit card debt. The key is to get a single debt instrument that you can transfer all of your existing debt into. It could be a personal loan, a home equity loan, or even another credit card known as a " balance transfer card ."

Why do credit card companies have priorities?

Credit card companies, many of which are owned by banks, have several priorities. The first is to generate profit for the parent company and its shareholders. When it becomes evident that someone may be unable to pay his or her balance, a shift in the credit card company's priorities happens that can work to your advantage.

How long does it take to settle a debt?

Pursuing debt settlement is a last resort because it involves stopping payments and working with a firm that holds that money in escrow while negotiating with your creditors to reach a settlement, which can take up to four years.

What to know before calling a bank?

Before you call, make sure you know exactly how much you owe, what your interest rate is, and any other important account details.

What is a settlement on a credit card?

A settlement is when a credit card company forgives a portion of the amount you owe in exchange for you repaying the remaining amount. The remaining amount can be repaid in a single payment or over a series of payments.

How to save money on credit card debt?

Working directly with your credit card company: Managing your own settlement can save you money by avoiding debt settlement fees associated with other services and ensures that you're involved and aware of every step in the process. The CFPB also provides recommendations for negotiating a debt on your own . “Consider all of your options, including working with a nonprofit credit counselor, and negotiating directly with the creditor or debt collector yourself.” - Consumer Financial Protection Bureau

Does a settlement affect your credit report?

The settlement may be reported to the credit bureaus. While it isn’t possible to say exactly how a settlement will affect your credit report, your settlement and payment information likely will be reported to the major credit bureaus as “settled in full for less than the full balance.”. This can stay on your report after you’ve paid ...

Is it risky to settle debt?

The CFPB emphasizes that dealing with debt settlement companies can be risky. They note that debt settlement companies “often charge expensive fees” and that “most debt settlement companies will ask you to stop paying your debts in order to get creditors to negotiate...a settlement.”

Do credit card settlements have to be complicated?

Credit card settlements can seem complicated, but they don’t have to be. By understanding your options, you can make an informed decision about how to manage your settlement.

Can a debt settlement company help you?

Debt Settlement Resources: You might have heard advertisements for debt settlement companies claiming to negotiate a settlement with credit card companies on your behalf. While these companies can help you with your debt settlement, there may be other associated costs.

What is settlement for credit card companies?

For-profit companies offer to negotiate with your credit card company and try to get them to agree to a “settlement” to resolve your debt (typically, the “settlement” is a lump sum payment that is less than the full amount you owe).

What happens if a company reports a debt as settled?

If it reports the debt as “settled” or a “charge-off,” which is debt that is at least six months delinquent and likely won’t be paid, then your credit will likely be negatively impacted. If the company reports the debt as “paid as agreed,” “current” or “account closed,” there may not be a negative effect on your scores.

How does credit counseling work?

Under a debt management plan, the credit counseling agency works with you and your creditors on a financial plan. You deposit money with the credit counseling organization each month, and the organization uses your deposits to pay your creditors on schedule. These programs do have qualification requirements and there is typically a fee.

What to do when debt becomes unbearable?

But when this debt becomes an unbearable financial burden, what can you do? One option may be to try to negotiate with your credit card company.

How to find out how much you owe on a credit card?

If you have multiple credit cards, go through your statements and make an itemized list of how much you owe on each card and the respective interest rate. Also jot down the customer service phone numbers.

What to do if you're drowning in credit card debt?

If you’re drowning in credit card debt, it may take a phone call (or several) to your credit card company to devise a workable solution. Don’t know where to start? Here’s a guide for how to negotiate with your credit card company.

How to lower credit card interest rate?

Lower your interest rate. Remove past late fees. These actions can reduce your overall debt and help you pay off the balance in a shorter time frame.

What is credit card settlement?

What is credit card settlement? It’s a debt relief strategy designed to erase credit card debt by making a lump sum payment to creditors. In a credit card settlement process, consumers stop paying their monthly credit card bills, sending their accounts into arrears. Once overdue balances become large enough, credit card settlement companies contact the creditors and make an offer to settle the debt with a lump sum payment. Typically, the payment is 25% to 80% of the total amount owed.

What is ACCC credit counseling?

ACCC is a nonprofit company whose mission is helping consumers find the best way out of debt. Our certified and highly trained credit counselors are available six days each week to provide free credit counseling for individuals and families. We can help you get a clear understanding of your financial situation as well as the many options available to you for paying off your debts. Taking your financial situation and financial goals into account, our credit counselors can show you how to settle credit card debt most effectively, and work with you to create a budget and implement a plan to pay down your debt over time.

How to finalize a settlement?

Release the settlement funds. To finalize the settlement, you need to deliver the settlement funds on or before the expiration date. Most settlement funds are remitted via ACH bank draft (aka "check by phone"). Make sure you write down who you spoke with that processed your payment. Every once in a blue moon a creditor or collection agency might require you to overnight a cashier's check to finalize a settlement. But the vast majority of settlements are finalized via ACH bank draft.

How long does it take to settle a debt?

In fact, some may lose patience and sue you. Certain debt settlement companies advertise "debt settlement plans", implying you can take several years to get through the process. In my opinion, that's a recipe for disaster. Generally speaking, I recommend completing the debt settlement process in 12 months or less (18 months tops).

How many credit card accounts are delinquent?

Whether we're in a good economy or not, a certain percentage (approx. 2-5%) of credit card accounts are delinquent. For credit card companies, it's just the cost of doing business — and they know it.

What is the biggest determinant of successfully negotiating settlements for less than full balance?

Perhaps the biggest determinant of successfully negotiating settlements for less than full balance is making sure you meet the minimum criteria.

Can you send a cease and desist letter to a creditor?

With certain credit card companies, a cease and desist letter is an automatic trigger to fast-track your account for litigation. Besides, if your goal is to negotiate a settlement with a creditor, you need to keep an open line of communication. For these reasons, I never recommend sending a cease and desist letter.

Is debt settlement a viable alternative to bankruptcy?

Although the debt settlement process can be a viable alternative to bankruptcy, it isn't perfect.

Can you do it yourself in debt settlement?

Same thing applies to the debt settlement process. You can totally take the do-it-yourself approach and be successful .

What is a credit card settlement?

Credit card debt settlement is an agreement between an indebted consumer and a creditor that entails the consumer submitting a lump-sum payment for the majority of what they owe in return for the company that owns the debt forgiving part of the outstanding balance as well as certain fees and finance charges.

How long do you have to be behind on credit card payments to settle?

you’re experiencing serious financial hardship). In other words, you have to be around 180 days behind on your credit card payments to even qualify for consideration.

When is Debt Settlement a Good Idea?

People often wonder why they should even bother with a debt settlement given that they’ll already be in default and the damage to their credit standing will already be done. However, debt settlement can be a wise decision for two reasons: 1) It eliminates the threat of a lawsuit, which might force you to pay your full balance; and 2) Paying what you owe is simply the honest thing to do.

Why do you need a debt settlement company?

Advantages: A debt settlement company is likely to know which creditors are more inclined to settle and for how much. A debt settlement program will provide you with the discipline to save money every month that you can use as leverage when negotiating.

How long does a default stay on your credit report?

It’s also important to note that since you are likely to have defaulted on your account prior to reaching a debt settlement agreement, information about the default will remain on your major credit reports for seven years from the date that you became 180 days late. Your credit score will suffer during that timeframe.

What are the two types of debt settlement?

With that said, there are two basic types of debt settlement: 1) do it yourself debt settlement; and 2) service-assisted debt settlement. You can also attempt to settle the following types of debt:

What is debt settlement?

Debt settlement is an amended payment agreement that entails submitting a one-time payment for part of what you owe in return for the creditor/debt collector forgiving the rest. Your account must be in default (or close to it) in order for you to qualify for debt settlement.

What is credit card settlement?

Credit card settlement is a type of debt settlement that will let you pay off credit cards for less than what you originally owed. This is usually done through a third-party agency, although you may also be able to negotiate hardship options or lower interest rates on your own. When you use a debt settlement company, you will be responsible for sending payments to the agency and may have to pay extra fees for the service.

How does credit card debt settlement affect your credit score?

This may cause your debt to fall into delinquency, which your creditors will then report to the credit bureaus. Delinquencies stay on your credit report for seven years, meaning you could feel negative impacts even after you settle the debt.

How to negotiate a credit card debt?

If you’ve decided to handle negotiations on your own, call your credit card company and ask to speak with the debt settlement, loss mitigation or hardship department ; a general customer service representative won’t have the authority to approve your request. Once you’re connected with someone who has the ability to negotiate with you, explain your situation and make your offer. Be polite but firm.

Why do credit card companies negotiate debt?

Why credit card companies negotiate debt. When finances get tight, credit card payments are often one of the first bills people let slide. After all, credit card debt is unsecured. If you don’t pay your auto loan or your mortgage, your car or house could be at risk. The same isn’t true with credit cards.

What happens if you pay your credit card bill late?

When you pay any bill late, credit card bills included, you may damage your credit. Credit problems can haunt you for years. Plus, if you default on a credit card bill, there’s a chance that the bank might sue you, and that leaves you vulnerable to more potential problems.

How much does credit counseling cost?

Many credit counseling companies charge startup fees and monthly fees (often $25 to $35) when you enroll in a DMP. Depending on how long it takes you to pay off your debt, even these small fees can add up to thousands of dollars.

Can credit card debt be at the bottom of your priority list?

Still, credit card issuers are aware that your unsecured credit card debt may be at the bottom of your priority list if you’re in a financial bind. When you fall behind on a credit card bill, the bank’s priorities may shift. Rather than risk you ignoring debt or filing for bankruptcy, a card issuer may be willing to consider negotiating credit card debt so that it gets back some of its money rather than nothing.

Debt Settlement Companies

Researching Debt Settlement Companies

Other Debt Relief Options

• Working with a debt settlement company is just one option for dealing with your debt. You also could: negotiate directly with your credit card company, work with a credit counselor, or consider bankruptcy. Talk with your credit card company, even if you have been turned down before. Rather than pay a company to talk to your creditor on your behalf,...

See more on consumer.ftc.gov