How to Negotiate a Debt Settlement with Your Credit Card Company

If you have fallen into a deep pile of debt, especially if the majority lies in credit cards, the worst decision that you can make is to not call the credit card company. Many people are embarrassed of their debt, and therefore avoid representatives of the credit card company like the plague. Let me reiterate: it's a mistake! As soon as you realize that you've fallen into debt, you should immediately pick up the phone and call the credit card company. Among other things, you can attempt to negotiate a debt settlement.

First of all, a debt settlement is not always a wise choice. Like any decision you make about your credit, it can have both positive and negative consequences. A debt settlement occurs when you rack up a sizeable amount of debt, then agree to pay the credit card company (or other creditor) a lower amount in full. For example, let's say that you've collected $10,000 in credit card debt. You've just lost your job and you aren't sure when you will be able to find another one, but you have $6,000 in savings. You would call your credit card company and offer to give them a $6,000 lump sum to close the account. At that point, the credit card company can either agree to take the settlement or they can refuse.

Why would a credit card company want to take less than they are owed? It's simple, really. Most people to whom settlements are offered are dangerously close to bankruptcy. Since a credit card is an unsecured account, filing for bankruptcy would ensure that they never get paid anything at all. In taking a lower settlement amount, they at least receive a percentage of what they are owed.

This might seem like an easy way out, but there are negative consequences. Creditors are allowed to make notations in your credit report when an account is closed or settled. Next to the settlement amount, they might note, "settled for less than full amount", which future creditors will see when they access your credit report. They might be reluctant to extend credit to you because you've been given a settlement in the past.

Regardless, a debt settlement is sometimes the only option for someone who is floundering in debt.

If you've decided to negotiate a debt settlement, the first thing to do is call your credit card company. Although you will want to get everything in writing later, it is better if you explain your situation over the phone. You will not be able to negotiate a debt settlement with a customer service representative. Instead, briefly explain the purpose for your call, and ask to speak with an account specialist. You will either be transferred or given another number to call so you can speak with someone who can make these decisions. Once you get that person on the phone, you'll need to explain your situation in greater detail.

Inform the account specialist that you are having trouble paying back your debts, but that you are willing to write them a check for a lump sum if they agree to a debt settlement. Tell them the amount of money you are willing to pay, and that you don't have any other resources at your disposal.

If the account specialist agrees to a debt settlement, you should immediately ask for confirmation in writing. Never send a check, money order or other payment unless you have a written agreement. If you were to send the money without having anything finalized in writing, you might wind up without a closed account and you would still have to pay the remaining balance.

A debt settlement should be a last resort as a debt management solution. You might want to start by trying to negotiate a lower interest rate or by cutting up the card so that you don't use it again until the debt is paid off. Talk with a debt management specialist to obtain advice in your specific situation.

By ST, published Nov 22, 2006
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