Negotiating Credit Card Debt Is NOT For Everyone

Is the weight of debt crushing you and if so, you most likely have heard of debt settlement and are contemplating whether or not to give it a try. A settlement with your creditor allows you to only pay a portion of the total balance as an outcome of credit card debt negotiation, since most of your debt is probably from credit cards. While it’s an attractive option, negotiating credit card debt will involve tasks that many consumers would find too tedious.

First we should know what we can get out of negotiating credit card debt settlement. The most obvious is the reduction in the amount to repay, but you can also lower or totally remove interests that are usually ill-conceived. Furthermore, depending on your creditor, repaying the debt in installments over period of say 3 years is also an option. That way you avoid a lump sum payment if you do not have any cash.

If the original creditor still has the account, an approximate settlement if all goes well would be around 50% of the balance. If a collection agency is in the picture, it’s even better. Most debts that are late for 60-90 days are sold to collection agencies at about 5 cents on the dollar. This makes them more willing to accept better terms when negotiating credit card debt with you because they can still make a good profit. So a settlement at 20% or even lower is certainly obtainable. However, the negative effects of an account in collection is detrimental towards your credit therefore it is still best to avoid going into collection whenever possible.

So what’s not to like here? As already hinted, your credit rating would take a huge hit after you negotiate credit card debt settlement. The effect doubles if it’s in collection. There are also tax consequences depending on how you negotiated your credit report to be listed. To avoid paying tax and to soften the credit impact, a “paid as agreed” or “settled” listing is preferred and stay away from “charged off”. Finally, you should be prepared for long discussions with your creditors because they won’t easily write off the debt unless they believe you are really on the brink and it’s in their best interest to receive something back. Your job would be to convince them.

As such, negotiating credit card debt yourself can be a very daunting task and for many hiring a professional or using the CCCS (Consumer Credit Counseling Service) would help immensely to a successful debt settlement. Or if you cannot tolerate the negative effects, you might consider choosing other methods that better suits you.

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