Understanding the Credit Card Debt Negotiation Process

Debt settlement programs are an alternative to bankruptcy for those who want to pay back at least a portion of their credit card debt. Often you cannot afford to fully repay your debt. With this program, your monthly payments are made to a savings account in your control. Your debt is negotiated down to a percentage of the original amount and then paid off.  Typically debt settlement programs take less time (2-3) years to pay off the debt than a Debt Management Program which typically takes 5 years.

The goal of a debt negotiator is to obtain a debt settlement for you on the current debt amount you owe your creditor. For example you may owe a credit card $10,000 so the goal of the negotiator would be to have you end up paying back say $6,000.

Why use debt settlement for credit card debt relief?

There are two benefits: to save money on what you owe your creditors, and to save time. By just paying the minimum payment at even a modest interest rate you could be looking at 30 or more years before you pay off the balance.  With a sound debt relief program you can be out of debt within years (2-3 ) or sooner depending on your current financial situation and by adhering to the program.

Understanding the Debt Relief Process

For starters your creditors most times are not willing to negotiate a debt settlement if you are current with your monthly minimum payments. Unfortunately, creditors want you to stay on the credit treadmill for the next thirty years. That will mean paying them back over four times the balance in interest alone. Thus, you must fall behind on your payments to put the creditors into a position where they will be willing to settle. Once you stop paying them they will then be willing to talk in terms of negotiating a settlement.

This may have a negative effect on your credit score. But if you are already falling behind, it will likely be no worse. If not, don’t let this deter you. The negative effect does not last forever. Once the settlements start coming through your credit score will begin to rebound and go back up. 30% of your credit score, according to MyFICO, is based on how much debt you owe.

Once you stop making your payments YOU WILL GET CALLS from the creditors. They will be calling to try and collect the debt. Some people may not get called much and some get called every day.  No debt settlement company has the power to stop the calls you may receive from creditors; so don’t be fooled by any company that tells you they can because they are not being truthful with you.

Negotiation Fee and Anticipated Reduction

It is important that you understand the debt settlement process. Ask questions and know what to expect. There will be a fee charged and you will save somewhere up to 30-50% of what you owe including the fees. Note: There is no guarantee of the negotiated savings. All creditors are different and they are negotiating to get a settlement for as low as they can get.