Given the current worldwide economic recession, it wouldn’t be difficult to fall into a situation where you ask yourself, “What’s the best form of credit card debt settlement?”
And that’s what we’re going to cover right now.
What is Debt Settlement?
Negotiating a credit card debt settlement basically means arranging to pay less than the total you owe your creditors to literally settle your debt. While this process does have limitations and risks, as the FTC explains in detail, it can be worthwhile. Working with professional debt settlement providers can be especially beneficial for making a complex process easier to handle, but it’s also possible to arrange credit card settlement on your own with the right steps.
It’s worth noting debt settlement should be considered only in dire circumstances. The process can harm your credit score, and it’s not easy to accomplish
Understanding Why Credit Card Companies Settle for Less
Credit card companies and banks often work together to offer credit to consumers. Their first priority with these loans is to generate a profit on fees and interest payments for their investors and shareholders over the long run. This includes ensuring that any credit offered is paid back in full with all interest and fees covered.
However, if these companies find a debtor unable to cover the debt they owe, their essential priority shifts to recovering as much of what is owed as possible, even if it means a loss of profits. The logic of this is that some recovery is better than none. This is why credit card debt settlement can work to your advantage.
Knowing Your Options
Before you take this step, you should ask your creditor if they’re willing to go for this and what settlement options they offer. If you can convince them that you simply can’t pay off what you owe in full, then they’ll usually offer you settlement plans in one of the following forms:
- OneTime Payment-in-Full Agreement
This involves arranging to pay off a certain fraction of all that you owe in one payment in exchange for forgiveness of the rest of your outstanding debt. In most cases, you’ll have to have the money available to pay right away. This is why settlement companies set up escrow accounts into which you deposit funds to be used toward settlement agreements as they’re reached. Visit https://www.ses-escrow.co.uk/software-escrow to learn more about escrow.
- Work-out Agreement
With a work-out agreement, your creditors are willing to lower your interest rate on the outstanding debt you owe. They might even lower or waive monthly minimum payments. In exchange, you arrange for a pre-agreed plan of payments that you promise to stick to in order to pay off the now-reduced debt balance.
- Hardship Agreement
If you can convince a creditor you’re going through severe financial, health or other types of hardships, this option may be possible. It entails demonstrating circumstances outside your control have made full payment impossible and, afterwards, coming to an agreement with the company for repayment of debt at reduced interest rates, lower monthly payments or with waived fees. Not all creditors are willing to offer this.
Documenting Everything Carefully
Determining the best form of credit card debt settlement begins with phone calls and emails but may also entail a lot of legwork. Before you attempt to negotiate with your creditors, tally the amounts you owe, to whom and under what payment or interest and fee conditions. During negotiations, keep records of all communications.
Get everything to which you agree in writing and make sure you live up to it to the letter. Knowing your specific legal rights as a debtor is also a useful idea. These can be found by contacting your local state Attorney General’s office or consumer protection agencies.