Is A Credit Card Debt Settlement Right For You?

If the pressure of debt got the best of you, and you fell behind on your monthly payments, a credit card debt settlement may be your only option out of this mess.  The settlement of credit card debt involves you working out a payment with the collection agency that is handling your debt.  Not everyone who applies for a debt settlement will be granted it.  Throughout this Hub, we will look at what the collection agencies look at when they are considering whether or not to grant you settlement of credit card debt.

Credit card debt settlement companies, or collection agencies, or the rude people who keep calling you, or whatever four-letter word you have for them work by purchasing outstanding debt from creditors and banks.  They purchase the debt at a reduced amount, the price depends on the risk involved with collecting the debt.  The higher the risk, the lower they pay and the more room for negotiation you have.  Keep in mind that when you contact the collection agency for settlement, they are going to expect a full payment within a few weeks, so have the money or access to it before you ring them up.

Lets take a look at what the credit card debt settlement company is looking at when considering if they should grant you settlement.

Image courtesy of Ebu Cehil via Flickr.
Image courtesy of Ebu Cehil via Flickr.

Who is Eligible for Credit Card Debt Settlement?

Before calling the collection company remember that they have your credit report.  There isn't a lot you can hide from them, so honesty is the best route to take.  They have thoroughly analyzed your report and know before you call whether or not you would be a good candidate for credit card debt settlement services.  Don't let this prevent you from contacting them though, there are still a few options you have to sway their opinion.

To the credit card debt settlement company, the people who are candidates for bankruptcy will be the most likely to receive a settlement opportunity.  People who have minimal secured debt (cars, homes, real estate) are going to be more likely to be good candidates.  It would be possible for those people to keep ignoring their phone calls and the collection agency has nothing else to collect on.  Their job is to collect, and would rather get a portion of your debt rather than nothing.  

The collection agencies probably don't want you to know this, but the longer you wait to pay, the better your chances of receiving a good settlement.  You didn't hear that from me, though (heh!).  The longer you let it go, the worse your credit score is and the harder it is to rebound from it.  If you have plans on being financially secure in the future, it's best to pay it off as soon as you can.

Image courtesy of Andres Rueda via Flickr.
Image courtesy of Andres Rueda via Flickr.

Going in to the Negotiation Process

Before you contact the collection agency there are few things you should have on hand.  You should have at least 50% of your total debt on hand in the bank.  This will allow you to pay right away.  The collection agency will give you a better offer if you can pay in a lump sum.  You can also use that amount in the bank as negotiation.  Saying something like, "I have $xxxx.00 in the bank right now that I can pay today" will tell them that you are serious that you are working to get out of this debt.

Another thing to have is proof of any financial hardships that you have been through since your last payment on this debt.  Things like a job loss or injury will give you a little bit more to work with in your negotiations to either secure your settlement or get a better settlement rate.

Should You Hire Help?

If you aren't comfortable going to bat against the collection agency, it would be a good idea to find a debt management company to help you out.  They usually can get a better settlement than you could on your own because of a preexisting relationship that they have with the collection company.  You will have to pay a fee to the management company, but it may be worth it to let someone else do the negotiation for you.


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jazzuboo 7 years ago from Queensland, Australia

Great info. I'm pretty careful with how I spend my money, so hopefully I will never need to go down this road.

bob 6 years ago

Good for you. I am also careful with how I spend my money. But, after losing my job in March 2009 makes managing cash flow even more important. I had perfect credit until last year. When your trying to support a family on unemployment and a savings account, at some point you have to decide whether to pay your bills or pay the mortgage.

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