Questions re: settling credit card balances for less than full amount

[GuvWurld]

I've heard that credit card companies will sometimes allow a customer to settle up an account with a lump sum payment that is less than the total balance. Has anybody here done this? Does anyone have advice about the way to approach this? Is there a service that specializes in these types of negotiations that will do it for a cut of what you'd save? If not, someone ought to go into that business. What is the least % of the balance that a credit card company would take in this situation? Is this only really an option for balances within a size range? Is the current craziness going to make credit card companies more or less willing to do this? What else would be helpful to know?

[LiberalAndProud]

1. I have an acquaintance

who had large credit card balances and was unable to pay the minimums. Credit card companies were calling to collect. She mentioned that she would soon be filing bankruptcy. The offers to settle were then forthcoming.

So, you have to miss some payments and then say the b-word, at least that's what she experienced.

[GuvWurld]

3. Thanks.

I'm hoping to read more and varied anecdotes.

[Porschenut1066]

2. Debt counseling could help. Not the ones that charge lots of fees

up front but there is a consumer protection debt counseling group in most towns that can help. Look in the yellow pages and try to avoid the wolves in sheep's clothing that take huge fees out first before they hand over a cent to the person you owe it to.

[meegbear]

4. I'm with Take Charge America ...

They charge $37 a month, not sure what the fee is based on, but my credit card rates went from 28% - 31% (douchebag Bank of America) to 9.9%.

[JoDog]

5. Yes, they will, but...

Many credit card companies will settle with you and forgive part of your debt. Doing so will usually close the account. If you are behind on your payments, and mention that you are considering bankruptcy, they will usually make you an offer. This is because if you successfully file Chapter 7 they will get nothing, and if you go Chapter 13 they may get even less than you are willing to settle for now. Depending on your own financial situation, settling debt may be a better or worse option than bankruptcy. You would need to talk to a lawyer or debt specialist to get a solid opinion.

Whether you do this yourself or hire someone to do the negotiations (like a lawyer) would depend on how comfortable you are dealing with people who aren't going to be all that nice to you, and how much debt we are talking about.

But there is a big caveat you should know about. Any amount of debt that is forgiven by the credit card company must be claimed as untaxed income on your tax returns for the year it was forgiven. Then, you must pay taxes on it. The CC companies file 1099 forms for it. So, before you make a settlement agreement, you should consider what this will do to your taxes. If a huge amount is forgiven, it may knock you into another tax bracket. If the amount is smaller, it may have little effect on your taxes. You may want to talk to whomever prepares your taxes or a CPA.

**** Please note that JoDog is not a lawyer. She's just a normal person caught up in a situation similar to that of the OP. She has spent a lot of time over the last month or so researching her options. Her opinions do not take the place of qualified legal advice.

[GuvWurld]

6. so it sounds like...

Please tell me if the generalizations below seem to hold true from your unofficial, non-legally qualified advice. ;-)

I'm getting the sense that the credit card companies will be the ones to make the offer, not the consumer.

I'm also getting the sense that making this kind of a deal is likely only when the consumer is in a relative position of weakness and the company fears losing all. This is the opposite of another scenario, for example, a consumer who comes into some money, a relative position of strength. The consumer might have a bunch of money that may not cover the whole balance, but which the consumer would part with to settle the debt. If the consumer were to be proactive about making an offer to the company, is the company likely to say no way? Would the consumer have to disguise this relative position of strength?

[GuvWurld]

7. Kick (eom)

[AnneD]

8. I have settled on several occasions and and will be doing it again this week....

First, some of these companies that settle your debts for you are scam companies and you can do it yourself and save the fees. They frequently take you money and make the situation worse.

How I do it.....

if you haven't paid in a while (over 6 mos) it is debt collectors calling you and you can deal with them because you debt has been written off generally by the company that loaned you the money and they bought the debt for pennies on the dollar. so before you make the call-look at what you owe them. Have 50-75% of the money on hand.....

The Call....

Before you call make sure you won't be interrupted. I like to get psyched up by playing some music-like the theme from Rocky or Eye of the Tiger.

Then I call and ask to speak to the supervisor. You will still have to jump through hoops but you want to talk to some one that can make a deal. Tell them that you came into a little bit of extra cash this month and you want to settle this debt (go for half but no more than 75). Yeah yeah they'll fuss but tell you have this amount and 5 other creditors and you are going down the list. It will first accepted, first paid. If they continue to be nasty, just say I'll talk to you later and hang up. Call a day or so later and repeat the process. Don't let them intimidate you or believe that you are talking to a lawyer-It's probably the other guy in the next cubicle. Tell them again that you have he cash in hand and can settle it within days. They will finally agree to a payment.

NOW THIS IS VERY VERY IMPORTANT.......

They will want to withdraw electronically from your bank account. UNDER NO CIRCUMSTANCES DO YOU GIVE THEM YOUR BANK ACCOUNT NUMBER...THEY WILL CLEAN OUT YOUR ACCOUNT BEFORE YOU HANG UP THE PHONE.

Before you even pay a penny, you want a letter in writing that they are settling the account with you for X amount of money. When you receive that letter or fax then you send the money AND NOT A MINUTE BEFORE!

Ask them where you can wire the money or mail the cashier's, or money order check AFTER YOU RECEIVE THE LETTER OF SETTLEMENT. They can write in the settlement letter that the money is to be received by such and such a date and pay whatever fees to get it there by that time.



Now, MORE very important words of advice.

Once you have payed off the debt- keep the settlement letter and proof of payment forever and ever. These things have a way of coming back to bite you and that is your evidence that you payed and they accepted.

I love to do this. First-because these guys screwed ME over by jacking on more fees when I was down on my luck, and secondly, I have had success doing this. Don't worry if they threaten to take you to court but if you do get served SHOW UP.

If they really want to play hard ball, tell them you want a full accounting of the debt...9 times out of 10 they don't have all the paperwork. And if you show up in court armed with records of your attempts to settle, etc.....most judges will settle in your favour. This is one of the few times you have a chance.

Remember-log your calls keep you letters and receipts. Remember, you hold all the cards here-you control the situation.. Don't be nasty but be firm. Also-you will have to pay taxes on the money you saved. The IRS considers it like earned income or something but then I don't mind paying taxes on MONEY I SAVED. PM me if you need.

[FedUpWithIt All]

9. I have. Have a certain amount of cash on hand. Around 50% even in some cases.

Call them and say that this can be sent to them immediately. Often they will accept a lesser payment RIGHT NOW over waiting for payments.

We have paid off 3 balances with an average of under 65% of the original amount due.