CHRIS & COTY'S MONEY TIPS

Credit Card Debt Settlement: Your Options

If you have long outstanding credit card debts where you are not making the monthly payments, credit card debt settlement may be an option.

What Is Discounted Debt Settlement?

Sometimes, if a company can see from its records that you have not paid anything for a while and they figure it is not likely that they will get the full amount of the debt plus interest from you, they will offer you a discounted settlement..

Follow up:

Often they will settle for 50% of the debt and they will write off the rest. Usually they will want this all in one payment, but if it is a large amount they may accept it in two or three instalments.

Often this offer will come from a debt collection agency. This can mean that your original lender has signed over the debt to the debt collectors, or it may simply mean that the agency is working for a percentage of whatever they can recover.

Why Do They Offer Debt Settlement?

The finance companies offer this when they can see that you are having so much trouble making payments, they might have to take you to court to get the whole amount, and maybe they wouldn't even get it then, because you might declare bankruptcy.

So they have a choice between incurring the cost of court proceedings and perhaps still getting nothing from you, or allowing you to pay, say, 50% . They figure they will be better off accepting half of what you owe, than trying to get the full amount through the courts.

Sometimes they will make another kind of offer. The account will be closed, they will put you on a low monthly payment plan and begin positive reporting to the credit bureau. This is much better than a charge-off.

What Should You Do?

Whether you should accept the offer depends on many factors.

First, you should be aware that accepting the first type of offer will affect your credit score in a negative way, because you will not have paid off your whole debt. If you can pay the full amount then it is better for your credit record if you do so. However, you probably would not have gotten to the point of receiving a settlement offer if you could pay in full. Accepting the settlement offer is usually better than having court actions against you.

Second, you will need to consider how you can make the payment that they want. Does it mean that other debts will go unpaid for a couple of months? What will be the consequences of that? Would you have to miss rent payments and perhaps lose your home? Think carefully about how you can raise the money.

Third, even if you decide to accept it may be worth trying to negotiate a lower settlement. This means calling them and saying that you cannot pay what they have asked for but you could pay 40% or whatever. This is often worth trying because it can save you some money without extra penalties.

When you call, write down the person's name that you speak to. If they accept your offer, ask them to put it in writing and wait for the letter to come before you pay. Then write a letter to send with your check stating that this is full and final settlement of your debt, and ask them to write back acknowledging that the debt has been paid.

Be aware that if you decide not to accept the offer, then after a while they may take the matter to court. A court may judge that you must pay the whole amount plus the costs, so you would end up paying much more than the original balance.

If you decide to accept, always read the small print on any offer. You need to be sure this is full settlement and they will write off any additional debt, so they have no right to come back to you in future demanding more.

When everything is complete, check out what has been posted to your credit record. If there is any mistake you should ask for it to be corrected right away and you will need to send copies of all of your correspondence. So keep all of the paperwork when you accept any credit card debt settlement.

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Good Luck,

Chris and Coty