Should You Get Help Negotiating Settlements with Your Credit Card Bills?

Most of the debt negotiation help requests and questions I deal with come straight to me from the person who needs assistance and answers. But occasionally I receive phone calls from friends and relatives about a situation with someone they know. Here is a recent exchange about stalled out debt negotiations, why that can occur, and when it may be a good idea to seek out help from a debt negotiator.

Ron writes: I have 6 credit card debts I can not pay due to lack of work. I sold some stuff around the house and managed to settle 3 cards. Two of my cards have now charged off and went to law firms for collection. I tried to settle one of those and they will not budge on the amount. Any help or any chance you think they will budge later before I get sued.

Can I get help settling my remaining debts, or should I wait and see if I can get them to budge?

It is important to know when you hit a wall negotiating and settling your own debt, and whether you can clear the hurdle, or should get help.

I am a huge supporter of DIY debt negotiation. I have helped many thousands of people to succeed settling debts on their own. But I also know it pays to have dedicated resources and coaching to help you through the process, and it is also sometimes necessary to get help from a professional.

6 reasons your debt negotiations may stall out, and when to seek help.

Not all banks handle debt negotiation the same way. Not all people can or should try to negotiate some or all of their credit card debts. It is important to identify if you are suited to doing debt negotiation yourself, and even more important to recognize if you have accounts that are just not good targets to be settled.

1. Your creditor is not known for offering reduce lump sum payoffs.

There are some smaller local banks that will just not negotiate a bill or settle for less. Some types of creditors, like a furniture store, or a medical service provider, are just not going to discount the balance owed. It can help a great deal to know in advance who will settle, and what the typical amounts may be.

2. Your creditor has a policy of not reducing the balance you owe if your account fits certain criteria.

Your balance could be too low, the account you opened too new, or the amount owed today was mainly from purchases you made just before you stopped paying your bill. Some banks refuse to settle when the bulk of the balance you owe is from balance transfers or cash advances. There are some helpful work around strategies in these situations that I cover elsewhere on the site, and can cover in more detail if you post what your concerns are in the comment section below.

3. Your prior success settling your other accounts is catching up to you.

Debt collectors are paying attention to your recent credit history. Some will use programs that are designed to show the collector how good a target you are for payment. The higher the score, the more likely they can collect. Some interpret what they see about your having settled other debts recently as a sign that they should hold out for full payment. You can avoid this by negotiating as many of your debts as you can in a short window of time, say 30, 60, or 90 days.

Getting debt settlement help from a professional.

I often tell people that debt settlement is not rocket science, but there is a formula to follow to get optimal results.The list of things to do when negotiating is short, but the list of things to avoid often isn’t. And sometimes you just don’t know what you don’t know. A professional debt negotiator can help you clue in on what holds you back from completing settlements, and also step in where needed.

4. You look like someone who can pay the full balance.

Similar to number 3 above, but not because you settled other accounts recently, you look highly collectable. If you have a mortgage, car loan, or other secured loan payments being kept current when your other bills are not getting paid, it can impact how you are viewed by a debt collector. It is not at all helpful if you have other credit cards you kept current with, while selectively choosing not to pay a larger balance, or higher interest credit card bill, you look even more like someone who will pay in full (also can be a good profile for a debt collector to sue in court).

5. You said something in your initial negotiation efforts that triggered the hard line stance.

Debt negotiation in general does not require a recipe or formula to follow. Think of it like making an omelet, or a soup. Just about anything can go in those and have it turn out right. But there are times where negotiating your bills for less will be more like baking. Unlike a casserole where anything goes, baking often means the end product is highly dependent on how you follow a recipe.

I have picked up many a file and found that my customer told the debt collector something that would prevent me from giving them a discount too.

Here are some examples of things you could say that are not productive to negotiating a good pay off deal with collectors:

  • I fell behind because I lost my job, but have a better paying job now.
  • I chose not to pay this bill because they would not work with me to lower my payments.
  • I have enough money to settle my remaining debts.
  • I am trying to qualify for a home loan (or refinance), but cannot because of this collection account.

You get the gist. You want to stick to discussing only elements of your situation and finances that support the collector accepting the limited money you have, or can pull from other resources, like a family member. Avoid discussing anything with a debt collector that would help them view you as someone who can pay more than what you are offering.

6. Time.

Ron is right to think about how it just may not be the right time to get a deal negotiated. If your negotiating with a debt collector right when they get your account, they are more likely to start with a “we do not settle and will only accept the full balance” position. But a month or two later, they may have a softer stance.

Waiting out the collector to negotiate the debt later.

Waiting out a debt collector is best when you know it is less likely you will be sued. Now that Ron’s account is with a collection law firm, the reality of being sued is likely much higher. The strategy from here may be to make certain you are not sued, or be okay with it if you are.

Much of what you do from here can depend on the balances on the accounts you have left to negotiate, who you owe, who the collectors are, and some other factors. Talking over strategies for dealing with collections at the stage Ron is at with his last 3 accounts would be extremely helpful.

I support people everyday with their DIY debt negotiations. But I also know there are people and situations that could benefit from hiring someone to do part, or all of the debt negotiating. Ron may be in a situation that could benefit from getting help from a debt negotiator to help resolve the debts he has left. You may be reading this while looking for help and answers too.

You can call and talk with me about your situation at 800-939-8357, choose option 2, or submit my debt negotiation consult request form. There is no cost to consult with me and see what getting some help will look like for you, or whether you even need to.

Anyone with questions or concerns about dealing with a collector who will not budge on settling for less is welcome to post in the comments below for feedback.

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Expert Review of Top 7 Credit Card Banks For How They Settle with Customers

There are many sources for rating credit cards using points, rewards, and fees as the main criteria. What follows is a debt relief version of “rank a bank” where I apply my experiences; feedback from people settling credit card bills on their own; trends for each bank that apply today; and each banks past offers for debt relief, as a ranking tool.

Most people reading this will care more about what relief is available from these lenders today. But I have included some review of past behavior in order to better organize the list.

If you need debt relief and help from your credit card lender, predictability and flexibility are 2 major considerations for how the below list is ordered.

Chase credit cards take the number one slot.

This may surprise many readers due to how much Chase gets hammered in the press and media for a host of issues. The state of California has sued Chase for past collection practices. There is still a pending announcement regarding penalties against Chase at a federal level as a result of the same practices the California Attorney General is suing for. Chase even stopped directly suing their card members as a method for credit card collections, and has all but stopped selling their unpaid credit cards into the debt buying market. But all of that happens around policies and procedures for accounts that charge off. This review focuses on debt relief before credit cards reach 6 months late.

Predictability: Chase has been settling pre-charge-off credit cards with their card members for between 25% and 40% for years. While there are instances where settlements are higher, they are for predictable reasons.

Flexibility: Offers settlement with 94 days to pay (split the payments up) before charge off.

History: Even while suing more card members a few years ago, Chase card members were consistently able to get 35% to 40% settlements pre charge off, and even with post charge off accounts sent to Chase legal (sometimes even after a lawsuit had been filed).

Active page to discuss settling with Chase.

2. Bank of America could arguably be at the top.

Anyone who knows the debt relief market well enough to put together their own debt relief ranking list, could argue Bank of America should be at the top. Bank of America, like Chase, is no stranger to negative press, and for some of the very same issues. But here again, sticking with predictability and flexibility, Bank of America wins second place when it comes to settling your credit card debt yourself – directly with your bank – and before charge off.

Predictability: Bank of America currently settles credit card debts for between 25% and 40% before sending your accounts out to debt collectors and debt buyers after charge off.

Flexibility: Offers the 94 day settlement payment terms prior to charge off.

History: Had I been publishing this in 2008 and 2009, Bank of America would be at the top of this list by a huge margin. At the height of the recent recession BofA settled credit card debts consistently for as low as 15% of the balance owed. Prior to the recession, BofA remained fair and consistent with settlement offers you could negotiate with them on your own.

Active page to discuss settling with Bank of America.

Wells Fargo rounds out the top 3 for consistency not savings.

Wells may not issue as many credit cards as some of the banks that follow, but they could teach a couple of them about stable recovery policies.

Predictability: I have long estimated settlement percentages for Wells Fargo credit cards at 40% of the balance owed. I still do. But enough 35% settlements are accomplished by people settling with Wells Fargo on their own, that I find that to be a realistic target prior to 6 months delinquent.

Flexibility: Wells Fargo may not always offer the 94 day terms. There have been instances where the better savings percentage has come from lump sum single payments.

History: Wells has been one of, if not the most stable credit card banks over the last 10 years when it comes to working with their customers to resolve debts before they get dropped into the different collection buckets. The American Bankers Association ran a story recently about how Wells Fargo started tapering off selling charged off accounts to debt buyers last winter, and has now ceased all sales to debt buyers. This change won’t likely last long, and I do not think it will impact pre charge off settlements with Wells Fargo.

4. Discover Card debt settlement policies are unique.

Some readers could legitimately make a case for Discover being at or near the bottom of this list. But if you are looking for debt relief versatility and flexibility amongst major credit card issuers, Discover Cards delivers. Just in some unusual ways.

Predictability: Discover trends today are settling credit cards (on accounts that qualify) for between 40% and 50%. There are some limited instances where settlements have been lower. Discover tends to not offer the 94 days to pay on settlements, preferring to get a single payment when settling before they charge off the account and place it for collections. But Discover is one of few creditors to offer a 60/60 plan to some of their card holders. This is where they offer to reduce the debt to 60% of the balance and spread the payments on that amount over 60 months. Discover does not sell much to debt buyers. And they are one of the more aggressive creditors to place accounts with attorneys for collection after charge off. If the focus of this ranking and review were anything other than pre-charge-off settlements, I would not have them at number 4.

Flexibility: Discover provides a different type of flexibility like mentioned above. Where Discover may not offer the 3 month payment terms; the 60/60 plan; as well as some of the strategic ways I have helped people navigate a Discover settlement when juggling other accounts; combined with a good reduction on their balances; places them above the remaining banks for this category.

History: Discover has been fairly predictable with settlements for the past decade. They do tend to get stubborn with settling, and the amounts they will settle for, when your accounts are very new. They have long had the reputation for placing more accounts with attorney debt collectors after charge off, than other creditors.

Active page to discuss settling with Discover Card.

5. Citibank is a little bipolar with debt settlement.

When it comes to settling with their card holders, it is hard to pin Citibank down for predictability, which is such a huge element for developing a successful DIY debt settlement plan. This fact combined with the other things I will lay out puts them near the bottom of my rank-a-bank debt relief review.

Predictability: Depending on the account, targeting 50% for settling your Citicard is the most realistic expectation to set. Citibank also services other credit cards like Sears, Lowes, and Home Depot. These branded cards can at times be settled for 40%, but often after they are placed for outside collections. When I put a debt settlement plan together that contains 3 accounts; one with BofA; one with Chase; and one a Citicard; I often target settling the Citibank card with a collection agency after charge off (if you had only enough cash resources to settle 2 accounts before charge off).

Flexibility: Offers to settle with the 94 day payment terms like other banks.

History: Over the last 10 years, I have watched Citibank go from being the most likely to sue; to offering to settle in a mailed letter for 35% at just past 90 days late; to offering great temporary hardship plans; to offering none; to settling at 60% as a floor; and even not offering any settlement at all. They do tend to sue for collection a great deal less than in years past, and due to the current collection environment, I don’t expect them to get more aggressive again soon. I do wish they would quit selling their debts to Unifund (a debt buyer), but I will save that commentary for the upcoming rank-a-debt-buyer post.

Active page to discuss settling with Citibank.

6. Capital One is not great for amount saved from debt negotiation.

The offers to settle credit cards with Capital One have been on again off again. That is only part of why they are this low in my review.

Predictability: Capital one settlement percentages before they charge off your account are currently 50%, sometimes a bit higher, rarely a touch lower.

Flexibility: You do have opportunities to settle over a few payments like with other accounts, but there are instances where a single lump sum is all that is on the table.

History: Capital One is the most prone to sue for collections than any other credit card issuer on or off of this list. Recent reports by investigative journalists show that Capital One sues more in Hennepin County MN, and Cook County IL, than anyone else, and by a large margin. One of the biggest issues is with how they have reported settled accounts with a balance still owing on your credit report. I do expect that practice to be curbed due to the supervisory authority of the CFPB, so if you experience this, post about it and let’s bring more attention to that practice.

Special note: Capital One fills a void for people starting off with building credit, and they offer good products to those who need to rebuild credit. Last I knew, they offered the best discretionary income calculation to qualify their accounts into a reduced monthly payment debt management plan with a nonprofit credit counseling agency. If they could rework their recovery policies, and their compunction to sue, they would be closer to the top of this list.

Active page to discuss settling with Capital One.

7. American Express misses in my review for settling debt.

AMEX lands at the bottom of this review for a couple of key reasons. Not the least of which is that you will rarely settle with American Express directly. The accounts that I have worked on as the negotiator (settling direct with AMEX), were done through a very small hardship department. That department had usually only been available when there were severe and sincere hardships – of a type that someone is not going to bounce back from. To their credit, the department has been wonderful to work with and extremely fair with the outcomes.

Predictability: Settling American Express accounts is a bit all over the map. The vast majority get settled with outside collection agencies and attorney debt collectors. The target amounts can range between 35% and 60% depending on who the account gets placed with, and how long the account has gone unpaid. There are instances where settlement is simply not on the table.

Flexibility: There are cases where settlements can be paid over 6 or even 12 months (after charge off). It will depend on who is collecting for AMEX. The lower percentage and best savings offers for settling tend to be when agreements are paid in a single lump sum.

History: American Express is a bit of an anomaly compared to all other credit card issuers in the US. To my knowledge, they have never really built out an internal collections and recovery department with long term goals. They have not sold charged off credit cards into the market. They maintain a black list of their account holders who default, making it more of a mistake if you ever get another Amex credit card product again. Their practices with business cards are odd too.

Active page to discuss? There really isn’t a dedicated page for settling with American Express. Settlements with AMEX are typically done with a collection company. Here is a post about settling with debt collectors for AMEX, and one for negotiating with Zwicker and Associates (national attorney debt collection firm that does a ton of file work for AMEX).

How do other credit card lenders rank for debt relief?

The above lenders combine to control more than 60% of the credit card market in the US. There are pages on this site with ongoing feedback and discussion about settling with many of the credit card lenders you do not see listed here.

Use the search box to find more information about them. If there is no page on this site about your creditor, or a debt collector you are dealing with, you can start one by using the Ask Michael feature.

The above is provided for general information. You can use the predictability for what each creditor may settle for as a base line for your planning. There are reasons why you may be able to settle for a better rate, or not be able to settle at all. I cover these variables throughout the debt settlement section of this site.

I will update this review with new information as trends change, which is inevitable. You can join the discussion for settling with each one of the creditors linked above, and are welcome to post in the comments section below for feedback.

If you are having difficulty hitting these targets when you are negotiating debt yourself, there may be a good reason for a banks reluctance to offer you better savings in a settlement. You can call and talk to me about it at 800-939-8357, press option 2. You may be going about it wrong, or have an account history that makes settling more challenging.

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How to Negotiate Credit Card Debt and Settle Successfully on Your Own.

If you have been following the early tips I suggest for how to negotiate and settle directly with your credit card bank, you have already had several “just calling to keep you posted” conversations with your bank (I recommend you call your lender once a month, or every several weeks, up to month 5 of being late with payments). If you are late to the process, and are already between 150 and 180 days late on your credit card, the following debt negotiation tips still apply, but be sure to hit the quick review links below.

Before I get into how you can go about targeting the amounts you are most likely to settle at with each of your creditors during negotiations, I want to make something abundantly clear.

Claims about settling debt for pennies on the dollar.

The internet is both friend and foe when it comes to looking for information about settling credit card debt. You will have no trouble finding websites, and offline promotions, of debt negotiation programs enticing you with claims that credit cards can be settled for pennies on the dollar. But if you define “pennies on the dollar” as 10 cents or less – it just does not happen.

There can be one off situations (mostly during the height of the economic downturn that began in 2007), where very low settlements could be achieved with some select lenders. But it is not the norm, and certainly not today.

If you have come across content or advertisements suggesting you can settle at these low- Low-LOW rates, you may want to forget anything else the source says about negotiating and settling. Targeting unrealistic settlement amounts is a good way to blow the opportunity to settle with your bank. Anyone leading you to believe that you can settle debt for pennies is more interested in selling you something, than giving you accurate expectations and information.

Soapbox interlude about debt negotiation content online: Be careful of taking something you read too literally. Anonymous information is hard to verify, and information may be dated. While one national bank may have been settling for 40% in 2010, you may be able to target your negotiations with that same bank at 30% today. Conversely, a bank may have made settlements with many of their card holders for 15% to 20% at the height of the recession, but now rarely go below 30%, and more often will settle at 40% prior to charge off. It is far better to look for current information regarding your creditors and collectors. It is also best to not read too much into anonymous posters from yesteryear when it comes to negotiating settlements that impact you today.

How much will your bank settle for?

Each credit card lender will treat monthly payment reductions, collections, and negotiating settlements a little differently. But the similarities between credit card lenders policies for settling will generally take you as far as the amounts you should realistically target for each account.

Having reasonable and real time trend based expectations for how much of a savings you can negotiate each of your credit cards for makes planning and succeeding with your goals obtainable.

By now you should have a grasp of the fact that settling credit card debt is not rocket science. But there is a basic formula to follow in order to maximize savings and limit risks. The more creditors you have, the more important it becomes to strategically plan for which accounts to negotiate with first, and which would be better settled with outside debt collection agencies (after charge off).

How you develop your plan should be based on how much money you have available to settle for the best rate of savings – given your particular lenders policies at the time you are negotiating with them – set beside any credit cards you have with a lender that is more aggressive in collecting.

Two ways to get help targeting and prioritizing what to negotiate for, and who to negotiate with first:

  • Post questions in the comments below, or better yet, search for your creditors name in the upper right search box on this page and find a page dedicated to that creditor and read through what others are doing and post questions in the comment section there.
  • Work with one of the professionals I highlight here who can help you negotiate your own debt

What phone number do you call to settle your credit card?

With your list of credit cards prioritized, and your timing set, making your calls to negotiate will start like prior calls I have suggested. Different creditors have different departments that handle delinquent accounts. In the first month to three of missing a payment, your calls may be handled by a customer service department. After 90 days of non payment calls are often routed to, or made by, a department that handles recovery.

Your banks recovery team will be who you are able to settle with. The number you call when you are ready to negotiate the settlement could be:

  • One you received in a collection notice from your bank recently.
  • The number on the back of your card (you will get routed to the department handling collections and recovery).
  • Depending on the creditor, your account may be out with a collector even before the account charges off, in which case you may be calling a collector, are get routed to one when you call in.

What to say when negotiating your settlement.

If you have not yet read through the previous article in this section, read more about your bank turned bill collector. That article will help you with your frame of mind when making the call to negotiate and settle. You may start your negotiations with a simple restatement of your financial situation. If you have been making your calls monthly up to this point, your story of personal hardship is what you will repeat. This time however, and depending on what your notes say from prior calls, you can either:

  • Repeat an offer that may have been made to you in the past (early on a bank rep may have said the account could be settled for say 60%), or you may have gotten a piece of mail from the bank offering some vague reference to settling, or a hard number or percentage. In this case you simply start off by saying “I am following up on that earlier offer to settle. I tried everything I could think of to raise that amount, but fell short. I did come up with XXXX.XX. If that could be accepted as settlement I can pull that together pretty quickly.
  • Bring the subject of settling yourself by saying something like “I broke down and shared my situation with family/friends. They suggested they may be able to help me with a loan. They do not have much to give, but maybe enough to settle with. Is that a possibility?

There are many ways to bring up the subject of settling when you call in. When you are calling in to negotiate and are between 150 and 180 delinquent, you will be speaking with someone trained to help you with that.

You should already have a good idea of what the bank you are calling to negotiate with will reduce the credit card debt to in a settlement.

Your offers to settle should be NOT be verbalized as percentages, but as round dollar figures that are short of, or really close to, what that bank is known to approve and accept.

Be prepared to answer questions about your income and budget when negotiating.

A few years ago some credit card issuers started asking a litany of questions before agreeing to a settlement. The list of questions is similar to what they ask in order to enroll you in a long term hardship repayment plan. You need to be prepared to answer these questions. Information about what your income and basic expenses should prove to them that you are in the red and unable to afford anything other than the settlement.

People working for your credit card banks internal recovery department, and outside third party debt collectors, have real time access to your credit report. During the negotiation call you may get hit with questions about other debts that are not being paid, and certainly about debts that you continue to pay (house payment, auto, and even other credit cards). How you answer questions about other debts that you are paying is often going to be common sense.

Depending on the question asked, you may respond with something like:

  • “Of course I am making my mortgage payment. I would be homeless if I did not.”
  • “If I quit making the car payment, they take the car, and I have no way to get to work.”
  • “That other credit card is not getting paid by me. My brother needed help and he is the one that made those charges. He is the one with the money to pay that one.”
  • “That credit card bill is only $20.00 a month. That one is getting paid because I can afford that. I could not qualify for your lower monthly hardship payments, which is why I am willing to pool all of my resources, and even borrow money from family to settle if I can.”

Answering questions when on the phone with your original creditor; while trying to negotiate and settle your credit card with them; before they charge it off; and drop your account into the external collection pipe line; is normal and okay to do.

What if you call in and are told the bank is not settling accounts at this time, or that your account does not qualify for settlement at that amount, or at all? This can happen. Here are some reasons why it may happen to you:

  • Your math regarding how many months you are behind added up to the perfect time to call and negotiate, but the banks math says you are 1 or 2 months less behind than you thought. Ask how many days late you are to confirm this.
  • You just look more collectable. Sounds funny when you are not paying on time, I know. But if your balance is say 5k, and you are paying other credit card bills, your account may be flagged and can mean no negotiated settlement. You may have to settle with an outside collection agency in a month or three.
  • That specific creditor is just not doing any settlements. It happens. They are not required to settle with their card holders. Refusing to is their prerogative. It is not common to flat out refuse settlements in today’s economy, but it sure was 10 years ago. American Express is a good example of a bank you may not be able to settle directly with.
  • Sometimes you may be dealing with an original creditor who refuses to settle at 165 days late, but who is suddenly willing to negotiate when you call in and are 174 days late.

There are ways that a professional can help you work around these issues, so do not rule out getting help when you need it.

Negotiate your credit cards before charge off.

You want to identify the types of accounts that are considered best targets for negotiating a balance reduction, and which are better left out of your debt settlement plan.

You should also recognize that settling debt can be viewed as being in a race. Your access to money over a short, or longer period of time, will dictate whether you are a debt settlement sprinter, or if you are more of a distance runner.

You know that the first and often best opportunity to negotiate and settle for the lowest payoff will be with your bank, and prior to your account charging off. The better you understand why you should target as much of your debt negotiations with your original lenders, the more strategic, committed, and proactive you can be in raising the money you will need. You will want to understand how and why to prioritize some of your accounts over others for earlier negotiation. You should also know that it is okay when some of your debts progress into later stages of collection. Some of your debt may in fact be best negotiated and settled in 2nd or 3rd stage collections.

Do not hesitate to get help and feedback when prioritizing the debts you will negotiate first, second, third etc. You can do that by participating in the comment sections below, or on any of the pages you visit on this site.

You should know that it is best to be prepared to pay your settlements from a separate bank account that you set up specifically for this purpose. Having your “set aside” account set up in advance is just good planning.

Negotiating with third party collection agencies if your account is not charged off.

There are circumstances where your creditor will send your account out to a third party debt collector before they charge off the account. American Express is the best example of a creditor who does this. Nothing much is going to change in your approach to negotiating an account that gets sent out for collections early, but that is still less than 180 days delinquent.

There are a couple of subtle things to be aware of when negotiating with contingency debt collectors. The next section of the debt relief program will be dedicated to how to settle with a debt collection agency hired by your credit card lender, and the second stage of collection.

If you would like to review the way I rank the top 7 credit card lenders based on their historical and current trends of working directly with their customers, check out how these banks rate when helping customers resolve debts, and some realistic settlement percentages you can start your planning with.

If you have questions and concerns about settling your debts at this stage of collection, and moving forward, post in the comments below for feedback.

If you would like to talk over your situation with me you can reach me at 800-939-8357, choose option 2. You can also submit my consult request form.

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How to talk to a bill collector.

Welcome back to the core debt settlement section of the debt relief program. In this section I will get back into the details of setting the stage for negotiating credit card debt with your bank, and how after 60 to 90 days of nonpayment, your bank starts to resemble a bill collector.

I took the quick detour in the prior section to outline things debt settlement companies do not talk about because that information is important for you to know, especially when you can settle one or more of your credit card debts directly with your bank. I will also refer back to some of what I covered in what debt settlement companies don’t tell, throughout the rest of the settling debt sections.

If you have, or will have, money ready to settle some/all of your accounts, but have not read about debt settlement and timing, or do not yet understand what it means when your bank charges off a credit card debt you owe, you may want to click back to the debt settlement section intro page here: Introduction to Debt Settlement. You will get the most from my negotiating and settling debt series by reviewing it in the order we set it up for you.

How to handle your banks internal collectors when you are settling credit card debt.

Before I stepped on to my debt settlement company soap box, I left off with the fact that you will get a ton of collection calls from your credit card bank once you miss a payment. Your credit card lenders collection calls begin with a customer service tone. If you pick up those early calls, more often they are reminders about missing a payment, or fist level account turnaround efforts from someone with more of a customer service orientation at the bank.

Credit card bill collector calls are just part of the process. You know collection calls are going to occur, so you roll with it. There are technology tools to manage collection calls. You can read about some of them right now, before continuing with the rest of this page: tools for debt collector calls.

In the above linked report, and several other places throughout the debt settlement series, I have highlighted the importance of being in contact with your creditors, even when the bill collector for the bank, or you, are not ready to settle yet. I have recommended for more than a decade now, that you be the one to instigate calls, rather than pick up one of the many bill collector calls you receive. Your calling the bank, if nothing else, helps your mindset.

There is a short list of things you want to cover with debt collectors for the bank, and several things you want to avoid when speaking with them. Let’s hit the DO NOT list first.

Do not ignore your creditor’s attempts to communicate with you.

Falling off the planet, or being completely unreachable when your creditors are trying to talk to you, can lead a bank to treat your account differently. Early placement with a collection agency, or bundling up your account with others and selling the collection rights off to a debt buyer, are a couple of ways your bank may react when they have nothing else to go on.

Banks change up their recovery policies and goals from time to time – some more frequently than others. Not every credit card lender is going to have a trigger, or way to segregate your file as having potentially better recovery odds (some indication your are more collectible than someone else). Someone who is showing up in their system as being proactive in communicating a financial hardship is less likely to be viewed as a complete account loss.

Good communication with your bank will also help you to stay in the loop with any payment reduction plans that your bank may offer that could fit your budget and overall debt reduction plan. Depending on the creditor, you may also get some early and attractive offers to settle your account by staying in touch.

There is a tendency to ignore early stage debt collector calls and leave mail from creditors unopened when you have not been making payments. But that is a behavior more attributed to someone without a plan. If you are serious about resolving your credit card bills, and are reading through all of the debt settlement sections of this site, than you have a plan. A settle your debts as soon as possible and move on with your life plan. You understand how settling debt works. You have access to professional feedback along the way.  You can even have a professional step in at anytime if you want to.

Do not pick up every collection call from your bank.

The calls will come with the type of frequency you may not be prepared for initially. The more creditors you have in your plan, the more calls you will receive. You may have spoken with a creditor in the morning only to see calls continue the next day. This is part of the process.

Remember that bill collectors have research and data showing them that they have better recovery rates the more often they call you. The more calls, the more stress you feel, and the more statistically likely it is you will make any payment in order to just stop the calls.

Making payments, even partial ones, that are not part of your plan, can delay your success. There are reasons to make some form of payment, even when you are trying to settle. But that payment would be made for a strategic purpose, not made because of bill collector calls and pressure tactics.

Picking up calls from a credit card bill collector is not even necessary. You need to feel as though you are (and in fact should be) in control of the calls when speaking to creditors, but we will get to the do’s in a moment.

Do not share too much with a bill collector.

There is sometimes a tendency to want to share too much with customer service reps who initially call you, and later the collection and recovery agents from banks. If all you are saying when you talk to the banks customer service rep’s, or recovery department collectors, is stuff that makes it tough to be you financially, that is more often fine. But you want to stay away from saying certain things.

A good example would be taking a call in the second month of delinquency and initiating some type of settlement dialogue. You are wasting your time by doing this. The person at the bank you are connected to at 60 days late is not typically authorized to have any type of settlement discussion with you as you are not late enough at this point for many banks to consider settling as an option to resolve your account. Even if a serious settlement discussion can be had, the offers are often not nearly as good as they will get later when you are closer to charge-off – where the bank will have to recognize the loss on the full balance of your account.

Participating in the comments below, or anywhere on this site, will help you get answers to questions and expert feedback about how to deal with any curve balls a debt collector working for your bank might throw during your conversations.

Two important considerations when settling credit cards and speaking with bank collectors.

We have long recommended that you speak with your creditor once every month after you have fallen behind with payments. I am not talking about a regimented schedule here, but many of our customers have designated a certain day and time to make all of their calls.

Depending on how many accounts you have in this first stage of collection that you are targeting settlement with, you could get through your monthly “check in” calls in less than 15 minutes. The more accounts you are dealing with, the more time you will need to schedule. You may even want to make a few calls one evening after work, followed by the remainder the following day.

Repeat these monthly calls to your creditors at least once a month when your accounts have not yet charged off (when you are not yet 180 days delinquent).

Why do I recommend that you make the phone calls to a bill collector?

It is important that you feel in control of the calls when speaking to a bill collector. A good way to develop the correct mindset is by doing the dialing. When you call, you are in control. You have a message to relay and when done, you politely end the call.

Bill collectors, whether working at the bank or with an outside collection agency, are very good at building your stress level. They know your level of stress often increases the odds they will get a payment from you. Staying on the phone and answering their questions is ill advised unless you are at the point where you are negotiating your settlement.

There are creditors you will be negotiating a settlement with, when the timing is appropriate, who will have a litany of questions for you, and that you will want to answer in order to get a deal locked in place. But that is going to be during one of, if not the last phone call, you have about that debt. I cover this in detail in the next section.

What you say to your banks internal collections department.

When speaking with creditors (and later with debt collectors), you only want to relay the information that helps you, and avoid giving information that helps them. The details should be limited to what has caused you to fall behind with your payments.

What created the hardship? What hardships remain? This is your story. You are living it. Was there job loss or some other type of income loss? Was there, or is there currently, a health issue with you or a loved one? Did your mortgage payment reset? Was there a pile on of unexpected expenses that caused your budget to be derailed?

These are the types of things you would describe briefly. What you say in these calls will often become part of your banks file notes about your account with them. The next person you speak to at the same bank can see prior account notes. What you said prior, and what you are saying to them now, should be consistent.

You should keep your script to a minimum. You could simply say: “I am calling to let you know I have not forgotten about this bill. I am having major difficulty right now because my job has mandated I take 3 unpaid furlough days a month. I am exploring options to supplement my income, and as soon as something comes through, I will be catching up with my payments. I have no available funds other than what I need to cover necessities at this time.”

In this example you have given all the information that you need to, and none of what you don’t. You established a hardship – your hours have been cut. You established that you want to be able to pay something – but right now you cannot. This will be your litany until the timing to offer the bank a settlement arrives.

What if you pick up a random phone call from a bill collector?

Because of how many calls the bill collectors make, and the fact that the calls will come from all manner of random toll free numbers, even numbers from within your area code (this is often spoofing), accidentally picking up a call can happen.

Settling debt, from start to finish, should be treated as a business transaction. You are involved in an effort to save your finances and avoid bankruptcy. Settling your credit card debt represents thousands of dollars in savings. For some, settling your debt is going to mean tens of thousands in savings. You do not show up for a job, where you earn thousands of dollars, unprepared and with a bad attitude. You show up prepared.

If you pick up a phone call from a bill collector and you are not prepared (making dinner, social setting, kids just got home etc.), be polite and quickly end the call. Here are some examples of what you can say:

  • “I cannot talk right now, I have my hands full. I can call you back.”
  • “I have a visitor and am not able to talk right now. I can call back tomorrow.”
  • “This isn’t a good time for me to talk right now. I will call later this week.”

The point is to be professional, and brief, while ending the call quickly.

I should also point out that when you sit down to make your outgoing calls to your original creditors, the same business mindset applies. Be courteous and to the point. Sit down to make the calls when you are prepared, and there are no distractions going on around you.

The general recommendation is to stay in touch once a month with your credit card lender until you enter the final month (cross over 150 days of nonpayment), which is where most settlements with your original credit card bank are going to happen – if you are prepared financially – to negotiate and pay the agreements you make.

There are some exceptions to targeting settlements after the 150 day mark. There are also exceptions to when a credit card issuer sends your past due account out to a collection agency. American Express is a good current example of a bank that sends unpaid credit card accounts out to an external bill collector after only a couple of months of missed payments.

The next section of the debt relief program will cover how to negotiate and get the deal with your original credit card bank. I will offer insights into:

  • Establishing the amount of money needed for a single lump sum settlement.
  • Settling with your bank using their allowable 90 day term payments with confidence.
  • Have you prioritized the right credit cards and balance for the earliest settlements?
  • How to prepare for a litany of questions that some banks have as a policy before approving a settlement with you.

Continue on with the debt settlement section of the CRN debt relief program – How to call the bank and negotiate your settlement.

If you have questions or concerns about making phone calls to bill collectors, or are concerned about something you should, or should not say, post them in the comments below for feedback. If you would like to talk with me about your situation you can reach me at 800-939-8357, choose option 2, or submit my consult request form.

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What Is Debt Settlement?

Debt settlement is what happens when you negotiate a payoff dollar amount for less than the total you owe on a debt. The lower payoff amount will be something the creditor or debt collector agrees to document and accept from you as payment in full. The lower negotiated  amount should be something you can afford to pay in one lump sum, or over time if it is a term settlement agreement.

Negotiating and paying a lower amount to settle debts you are already late with is very common. There are elements to settling some types of debts that you can set your clock to because the process can be highly predictable. And there is both safety and comfort in that predictability.

Settling credit card bills, and other debts you cannot afford to keep up with paying, is a pretty straight forward concept. Ans so is determining whether settling with creditors and collectors is right for you. Let’s start by narrowing down the basic principle of the 3 most common debt solutions to one sentence each.

  • Consumer credit counseling and payment consolidation is based on the principle of “What can be paid – should be paid”.
  • Debt settlement is based on the principle of “Paying something – is better than nothing”.
  • Bankruptcy is based on the principle of “What cannot be paid – won’t be paid”.

If you are looking at debt settlement as a way to deal with problem bills, it is likely because you are in the middle. You cannot fully afford the debts you have now, but can afford something, and would prefer to manage the situation outside of a chapter 13 bankruptcy, or are choosing to avoid discharging your credit card and other bills in a chapter 7 bankruptcy.

Debt settlement is a way banks lose less.

Each of your credit card lenders will have a policy for how they handle trying to collect on accounts that go delinquent. Some of these policies include:

  • Getting you back on track by offering reduced payment hardship plans that may be temporarily extended to you for 3 to 12 months, or applied over the life of the balance in a 5 year payback schedule. Read more about credit card hardship payment plans.
  • Debt collection efforts internal of the banks own recovery department.
  • Charge off your debt as noncollectable and place your account with a collection agency who will bug you over the phone and through the mail to get you to pay.
  • Placing your account with a debt collection attorney.
  • Selling your account to a debt buyer.

Debt settlement is a method to resolve unpaid credit card bills for less in every one of the scenarios above. That’s as complicated as the debt settlement process will ever be.

It’s the “how will debt settlement work for me” and “is debt settlement even for me” questions that make for details.

Debt settlement details.

Ahhh… the details. Yes, getting the best deals, and the most from debt settlement, is in the details. And the details when negotiating and settling can change from one creditor to the next; from one collection stage to the next; and most certainly from one personal set of financial concerns to the next.

The majority of what happens in the process of settling credit card debts is controlled by the policies, procedures and protocols that are set up by your creditor or outside third party debt collectors. Knowing the policies and procedures for each of your accounts you will settle, in advance of the settling, is a huge benefit. You simply plan ahead financially for the settlement opportunities that will be presented along the way.

You can use this site to help you settle your debts on your own. We offer upfront education about the debt settlement process, supplemented by on the ground and “right now” details provided free in the comments section of this website. And you can get one on one dedicated professional feedback by requesting an expert debt settlement consult over the phone.

We know that many people are freaked out by the concept of negotiating and settling credit card debts on their own. You also have access to professional debt negotiators, and often at the most reasonable cost found in the industry. If you would like to talk to me about that you can reach me at 800-939-8357, choose option 2.

In the next section I will bluntly outline who debt settlement is right for and why debt settlement is a race. You may already be in the race and not know it.

Continue on with the debt settlement section of the CRN online debt relief program – Will Debt Settlement Work For Me.

If you have any concerns about what settling debt will mean for you given your situation, future credit and financial goals, or other sensitivities, post in the comments below and get expert feedback.

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Settling Credit Card Debt is Like Running a Race

Settling credit card debts for less than what you owe is a simple concept. So simple in fact, that even when trying to describe this debt solution as complicated in the prior section, we couldn’t. A good analogy I use to further detail what debt settlement is and how it works is to think of yourself as entering a race.

Comparing settling debt to being in a race does not mean only the fastest runners win. Being quick in the context of unsecured credit debt settlement just means you finish the race earlier than others. There are certainly benefits to running a fast race. But debt settlement can also be a marathon.

In a marathon, some runner’s finish, some don’t. But you do not have to be a sprinter to come out on top.

Settling credit card debt while racing toward a finish line sounds like pressure.

Describing debt settlement as “running a race” does not change the simple concept outlined in the prior section – What is Debt Settlement. But this description has a tendency to make people uncomfortable about the process. Using the race analogy over the years has cost me many customers. People who otherwise would have enrolled with us didn’t, because being in a race to settle debt doesn’t sound simple. It sounds like there will be stress and pressure.

Most debt settlement companies offering to settle your credit card debt for you do so in a presentation that gets you to focus on a simple and easy lower monthly payment. This easier-softer form of marketing gets more people to sign up. It also means selling debt settlement programs that take 36 months and longer.

Running a longer debt settlement race is a problem for many reasons. You will learn how and why to avoid these problems in coming sections.

Settling credit card debt can be different for each of us.

Participants in the debt settlement race need to first identify if they should even enter. Three things you will want to consider in determining your suitability for debt settlement as a solution to your debts will often include:

  1. The balances on your credit cards.
  2. Who your creditors are.
  3. How long it’s been since a payment on an account has been made.

Each of your creditors has their own set policies, timing and percentage of balance targets when negotiating delinquent accounts. You should speak with a reliable source that will provide details about what your particular creditors do when it comes to settling for less than the balance due. You can post your account details using those three things in the comment section at the bottom of this page and get feedback about what debt settlement could look like for you. You can also consult with me on the phone by reaching me at 800-939-8357, then press option 2, or submit a consult request form.

Once you have creditor specific details, you can better target the next suitability measure.

  • You’re immediate and future needs.

Can your current budget and monthly income provide for your basic needs now and into the near future while meeting your time lines for settlement? Your needs include your combined monthly bills and expenses. Calculate them as if you had no credit card debt at all.

The next item is the largest consideration that will measure your fitness to run the debt settlement race.

  • Your ability to tap funding sources now and over a projected period of time in order to pay the newly negotiated balance reduction.

A dominant factor in determining whether settling with your banks is an appropriate option for you is how quickly you will be able to pay the settlements.

There are flexibilities for funding debt settlements that are missing from your other legitimate options, such as credit card payment consolidation, or chapter 13 bankruptcy. The flexibilities cannot be extended too far however. The faster you settle – the less risk there is when you are not paying creditors – in order to later reach settlements with them.

Historically CRN has not agreed to take on members unless they can realistically settle all accounts in 18 months. Along came the recession, and with it some considerable impacts to how debts get settled the longer they go unpaid. We have now shifted our recommendation of debt settlement as a debt relief solution to anyone able to run a 24 month marathon (this does not reflect people with much older accounts that may have gone without payment for a year or more at the time you are reading this).

Estimate how long it will take you to get out of debt.

Add up all of your credit card debts to a grand total. Then cut that amount in half. Next calculate your available savings, cash flow from monthly income you can save up over time, and all resources you can tap over the following time frames (this assumes you are current with your payments today):

6 month race – This is generally the fastest race that be run in a debt settlement program. The reason there are no shorter tracks in debt settlement has nothing to do with you. Creditor policies are what set the pace you run.

12 month race – This type of pace for settling your debts is ideal for limiting the risk a creditor sues you, and also allows you to settle some accounts that go unpaid more than 6 months using longer term payment agreements (that are now more common).

18 month race – This long of a track is about as far as some people will want to stretch themselves. Accounts that go unpaid this long will see increased odds that a creditor will sue in order to collect. This track length is becoming more successful due to debt collectors and debt buyers willingness to settle an account for less and give long term payment options along with the agreed balance reduction.

24 month race – This is about as long as we will recommend someone endure a debt settlement program. Your odds of being sued for unpaid debt have increased to a point that should make you uncomfortable. If you have not settled your accounts by now and at least have the last remaining ones on some type of term payment agreement, you should probably not have entered the race. There are some states with such strong consumer protection laws when it comes to unpaid credit card debt – it makes 24 month debt settlement tracks a no-brainer. The rest of us will cramp up trying to stretch debt negotiations longer than 2 years.

If your current balances on all of your credit card bills were cut in half, how long will it take you to come up with the money – from whatever sources – to pay 50% of your combined debt?

This is where we traditionally tend to lose peoples commitment to settling debt, or where people may go off and sign up with a debt settlement company pitching some easier sounding 36 month and longer debt relief program. It should not be this way.

People just get all worked up over – “wha… a race… I should be putting as much money as I can to settle… huh… this is not an easy monthly payme… what?”

Sorry folks. That’s the reality. It does not mean 36 month and longer programs cannot be done. They can. There is an entire debt settlement industry out there promoting them every day. We just don’t recommend them. Our customer completion ratios (people who work with us and settle ALL of their debts) are 100% higher or more than the industry norm because we don’t suggest longer tracks.

Some people should not try debt negotiation to get out of debt.

There are considerations when it comes to letting us talk you off the debt settlement path to debt relief so easily. I do try to get you thinking about the reality of debt settlement as quickly as possible, and for good reason, but there are reasons you can be quicker about settling your debts than you may immediately grasp.

Here are some things to think about:

  • You have debt you cannot keep up with and something has to change. Just because debt settlement can be viewed as a race does not make your debt any more affordable than it was before you read this article.
  • Debt settlement is not all daisies and roses. It’s an alternative to bankruptcy.
  • This is only the third part of the debt settlement section of our debt relief system. The next portion begins the how to’s, what to’s, and when to’s. You need to keep reading.
  • The estimate of money you will need when settling your current bills we used above is a generalization. Some of your accounts could easily settle for less than that. In fact, in some instance much less. That would make a 24 month track (or less) achievable.
  • If you get a 36 month or longer program length quote from a debt settlement company, the quote includes what are often some hefty fees. Take out those fees, or cut them by half or more, and a shorter debt settlement track may be in your reach.

You can use this website as your trainer from the beginning to the end of the race. You will get many advantages from not just reading, but also participating in the comment sections of the many articles and guides we have. You can also work with someone in the network one on one. Getting dedicated help from someone who has traveled the course thousands of times before you puts you in the best position to not only compete, but to win your race!

Now that you have read the above description, you should now notice that there is pressure involved with opting for debt settlement as your path to getting out of credit card debt. We share this with you because it is the responsible thing to do – even if it worries you. Debt settlement is not for everyone. Don’t enter the race if you are worried you cannot finish it.

Lets get started with the meaty part of the debt settlement solution. The next section will cover the math and the critical timing that you will want to know about when settling credit card debts.

Continue on with the debt settlement section of the CRN debt relief program – Debt Settlement Timing.

This page is a great place to stop and ask questions about what settling will look like in your particular set of circumstances. I have articles on this site with over 2000 comments and growing, but this page, that targets such a critical question about if settlement is a good option or not, gets little participation. Please do post in the comments about your accounts like I suggested above. Get an estimate of what you are up against when settling credit card debt. If you are shy, call me to go over the numbers at 800-939-8357, press option 2, or you can submit a consult request form.

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Timing Your Settlement Offers with Your Banks Policies to Get the Best Deal.

Settling each of your credit card debts successfully, and for the best possible savings results, follows a simple formula. The formula is 2 parts math and one part timing. The best debt settlement savings available to you with each of your debts can be a moving target when the math (the money you have available to settle), moves your timing. You will sometimes have to adjust your expectations based on how long its been since the credit card was paid, whether your bank has charged off your account, sold your account off, placed it with a collection agency, and other timing targets.

Sound like fun? I know… not so much. But that is one of the things CRN brings to the table through this debt relief program. We can help you target your negotiations in order to get the best debt settlements. Even if you want a professional negotiator to handle the process for you, this information will still provide you with the formula for how much money you will need, and when you need it by, in order to complete your settlements for the best result.

The math involves the lowest amount each creditor or debt collector will settle for, combined with your ability to come up with that amount of money all at one time, or spread out over several months.

In order to get the math to work in your favor, you want to have good timing.

Math and Timing are two things you must consider when determining whether or not you can be successful with debt settlement. I cover this in more detail in  my article about winning the debt settlement race.

A basic fact about settling debt is that no settlement will occur with any creditor until there is a proven inability to pay. There is no proof you cannot pay until you actually haven’t paid.

Time for some housekeeping:

We cannot instruct you to stop paying your debts. Your decision to do so is your own. Most of you reading often had, or have, no choice in the matter. Running out of money before you run out of month is good like that.

The debt settlement section of this site is here to inform you of the consequences and opportunities that will occur along the way.

The decision to stop paying bills is not one that should be treated lightly. If you have concerns about falling behind with a creditor, post about that in the comments below. Lets talk about how you can navigate your concerns with details specific to you. There are often customizable attributes you can build into a debt relief strategy that will better suit your situation, or the outcome you want to reach.

WARNING: Because debt settlement typically only begins to be an option after you have missed making at least the minimum payments due 3 months in a row, the debt settlement process, once started, can have irreversible implications.

If you have fallen behind with your credit card payments temporarily, and are able to get back on track with some form of normal monthly payments – look into a credit counseling service, or talk to your credit card banks about any internal hardship repayment plan they may make available to you.

Understanding the basics of negotiating the best debt settlement deal.

Any bank will be able to tell you that not everyone they loan money to will pay it back. It’s a certainty that is known before any lender opens their doors. The US economy is credit fueled and debt based. Debt and credit is how we roll. This means our entire spend and borrow system must have a debt collection function built into it.

The fact that not everyone will be able to repay their debt gives rise to the multibillion dollars in yearly revenues that the collection industry feeds on.

The debt collection process starts with the attempts your creditors make to collect from you when you miss payments. Your banks collection efforts are centered on how to “lose the least”, while third party debt collection efforts are centered on how to make the most. This is an important distinction that you will learn more about in later sections of the debt relief system. For now, let’s stick to how banks view your accounts that are not being paid.

Credit card banks trying to “lose the least” use tools and follow policies that are, for the most part, predictable.

Once a credit card bill becomes seriously delinquent, the odds of ever being paid another penny on it decrease dramatically. Banks have the option of accepting less than what you owe before they fully mark down your account as a loss.

When banks charge off a debt (account for the loss), they will typically do one of three things with your account:

  1. Assign your debt to a debt collection agency.
  2. Place your debt with a collection attorney.
  3. Sell your debt to a junk debt buyer.

Most banks will settle for less than what you owe, but at the right time.

Credit card banks will, on average, lose less by collecting what they can from you before they drop your account into one of the three collection buckets mentioned above. That’s why banks settle credit card debts. Not because they are nice. It’s just math to them.

Your credit card debt that you cannot afford, that is the source of enormous stress for you, is an accepted and planned for statistic for the bank. Just like the debt relief program is designed to get you to focus on math that works for you, banks will focus on math that works for them.

Throughout the debt settlement section of the debt relief program you will see references to collection stages. Here is what we mean when we refer to the different stages of collection:

  • 1st stage debt collection is when you are dealing with your original creditor. This is generally within the first 6 months of having not paid your credit card bill.
  • 2nd stage debt collection is when you are dealing with a contingency, or an assignee debt collection agency, collecting on behalf of the bank. This means the creditor still holds the debt. Your account was not sold.
  • 3rd stage debt collection is when you are dealing with a debt buyer. A debt buyer is a company who has purchased the legal right to your debt.

We are creating a new category description as a result of our publishing the debt relief program. This new description for dealing with collection attorneys that we used to refer to as 3rd stage is now designated as….

Critical stage debt collection means your account has been placed with an attorney licensed to practice law in your state.

Each one of these stages is covered in detail in upcoming debt relief program sections. The next section provides details for dealing with 1st stage collection and how to get the best debt settlement from the bank that issued you the credit card.

Continue on reading about how to settle credit card debt direct with your bank.

 If you have questions about the stage of collection you are in, or the timing of negotiating debts, post in the comments below for feedback. If you would like to consult with me directly you can fill out the consult request form, or reach me at 800-939-8357, then press option 2.

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5 Things You Won’t Hear From Debt Settlement Companies

In the prior section of the CRN debt relief program we discussed the benefits of settling credit card debts in the first stage of collection. This means getting settlement deals documented and either fully funded, or partially funded, by dealing with the original creditor. We will continue with the pre charge off debt settlement topic on the next page. Before we get back on track with that, we did leave off with some concerns you should be aware of if you hire a debt settlement company to help you settle credit card debts.

These concerns are mostly related to debt settlement companies and their ability to settle debts with some creditors. But there are other key business practices used by the debt settlement industry that are noteworthy.

Before I get to what many will view as my being opposed to hiring a debt settlement company, I want to point out that I have offered professional debt negotiations for years. I am not opposed to hiring a debt settlement company. I do suggest you do that with eyes wide open though.

5 things you typically do not hear from companies offering to settle your debts.

1. Some of your creditors refuse to work with my company.

2. We have to wait for some accounts to charge off before trying to settle even though this may cost you more.

3. You can negotiate and settle credit cards on your own and sometimes get a better deal than we can.

4. If we weren’t charging you such high fees you could actually be out of debt faster.

5. You’re a good fit for our settlement program, but bankruptcy may still be a better and less expensive option. You should speak with an attorney first before committing to enroll with us to settle your debt.

In the prior debt settlement article we pointed out a few concerns you should have with hiring a debt settlement company to negotiate credit card debt in first stage collection. The above items are HUGE concerns because they are ways that hiring a company could limit your ability to succeed with debt settlement. We may come back to this topic in later updates to this section, but for now let’s focus on what the above means to you when settling credit card bills with your banks.

Here is a brief video where I touch on the 5 items listed above:

Debt settlement companies wait for credit cards to charge off.

The best offers with some credit card settlements are going to be with your original creditor before they charge off your account. By better, I mean 10 to 25% better. By settling with your original creditor, I mean within the first 6 months of missing payments. But most debt settlement companies will not point this out.Their fees for settling your debt, and the expectations the front line sales people are trained to set you up with, prevent the sharing of key details you need and deserve to know.

Judging from the tens of thousands of people who sign up with debt settlement companies each year, people must be okay with this. I can only come up with 3 reasons why folks will act outside of their own interests in this regard. If you can think of more, post them in the comment section below.

  1. They didn’t know any better.
  2. They know better, but don’t care because they have no grasp how simple it is to work out a settlement with many of the larger credit card issuers.
  3. Some people just don’t want to pick up the 10 ton phone and talk to a creditor, let alone a debt collector, and would rather a debt settlement company do all the heavy lifting.

We get it. Different strokes for different folks. The CRN debt relief program is designed to educate and inform. The do-it-yourself-ers will take the information in the debt settlement program and run with it. Some of the DIY-ers will see the value in becoming a CRN member so they can work with a pro one on one in order to maximize savings, timing and to navigate things that inevitably change along their debt settlement journey. Some people will only ask a debt settlement company to step in when they are dealing with later stages of debt collection, or if they hit a road block with a tough account.

Why have we taken a break from our regular schedule programming to insert the debt settlement company concerns? Well, we were going to anyway. We will have more to say about saving money by avoiding high fees to a debt settlement company in later sections. We are pointing this out here because – debt settlements with your original creditor should be done by you when and wherever possible. Here are 3 reasons why:

1. Money.
2. Money.
3. And money (this is the stuff your running short of, or you would not be reading through the debt relief program on this here web site).

I thought hiring a debt settlement company was going to save me money.

A couple of the largest credit card banks in the nation flat out refuse to work with debt settlement companies, including CRN. They have held this position for a couple years now. If you want to settle debt with one of these credit cards before charge off in order to save the most, potentially save some damage to your credit report, and prevent the account from getting dropped into the collection pipeline – you have to settle it yourself!

Tip: Banks change their internal policies. Not every month, but credit card banks willing to work with a debt settlement company today, may decide to stop doing so right in the middle of your debt settlement program. It happens.

For people who just want a settlement company to do it for them, we understand. That’s why our members also have the option of asking for a negotiator to handle some or all of your credit card negotiations. But we cannot help you settle some credit cards until the account charges off.

Another one of the largest credit card banks does work with debt settlement companies to settle accounts. But this bank typically settles with professional negotiators at a rate that is 10% or 15% higher than what CRN members consistently settle for on their own by planning and being prepared.

Tip: Virtually all creditors will settle with you at the same, or better rate of savings, than they will offer any of the debt settlement companies you might hire.

If you want someone to negotiate your credit card bills with your original creditor before charge off, and work with someone in the network, you will need to have a blunt conversation with about your creditors and their policies at this time.

Okay, let’s now return to our regularly scheduled programming. The next section will continue without a soap-box interlude, and will focus on the stuff to do, and avoid doing, when settling debts in first stage collection.

Continue with the debt settlement section of the CRN debt relief system – How to handle your banks bill collector calls on the way to settling with them.

If you have questions about anything covered on this page about hiring a debt settlement company, or about one you are already working with, post in the comments section below. If you would like to consult with me off line you can reach me at 800-939-8357, then press option 2, or submit this consult request form.

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Canceled debt and taxes when creditors forgive or abandon collection.

Settling debt for less than the balance you actually owe involves debt forgiveness. Your creditor is forgiving a portion of the debt owed to them because collecting something from you is better than nothing. But there are IRS rules for your creditors to follow if the amount forgiven exceeds $600.00. Your creditor is required to file a 1099-c notifying the IRS that a portion of your debt has been canceled. You can expect to receive a 1099-c from the creditors you settled accounts with starting in January, for the settled credit cards in the prior year.

It is becoming more common to receive a 1099c regarding entire balances being cancelled by creditors (you never negotiated to pay less than the balance owed).

The amount of your debt that is canceled is viewed as income by the IRS. You therefore must include the amount of debt forgiven as part of your income in tax filings for the year in which you settled debt.

Whether or not you will actually owe and pay taxes on forgiven credit card debt will depend on whether or not you qualify for the “insolvency exclusion”. The insolvency exemption is an asset vs. liability exercise. Solvency has nothing to do with your income as derived from wages or a salary such as from your employer. Solvency for the purposes of determining a tax obligation relating to forgiven debt centers on what you owe vs. what you own.

You will certainly want to speak with your accountant or a qualified tax professional to establish whether or not taxes will be an additional concern, but here are some resources to review, as well as some tips to help you stay organized and prepared, for your tax filings when settling credit card debts.

From IRS Publication 908, page 24:

Insolvency exclusion. A debtor is insolvent when, and to the extent, the debtor’s liabilities exceed the FMV of the assets. Determine the debtor’s liabilities and the FMV of the assets immediately before the cancellation of the debtor’s debt to determine whether or not the debtor is insolvent and the amount by which the debtor is insolvent.

Exclude from the debtor’s gross income debt canceled when the debtor is insolvent, but only up to the amount by which the debtor is insolvent. However, you must use the amount excluded to reduce certain tax attributes, as explained later under Reduction of Tax Attributes.

You, or the tax professional you use, will need to file form 982 related to any exclusion claim you may have. The form 982 can be viewed on page 27 at the same IRS Publication 908 link provided above.

Figuring out taxes on canceled and forgiven debt.

The IRS insolvency quote above uses the abbreviation “FMV”, which stands for Fair Market Value. In other words, what is your stuff worth? You will need to establish the value of the things you own just prior to a credit card debt being settled.

  • The value of a car you own outright can be established through the Kelly Blue Book guide.
  • Your home’s value can be ascertained by an appraiser or a broker’s price opinion (BPO) where the selling price of comparable homes in your area will be used in establishing the current value of your home.
  • If you are underwater in your home’s value (you owe more on your mortgage than the home could be sold for), like many Americans today, the amount you are underwater is a liability, not an asset.

If your home has equity at the time of your settlements, the amount of that equity would be considered an asset.

Simple exercise to test your solvency after settling for less.

Take a blank page and on the left side list all debts you have. Include mortgage debt, amounts you still owe on a vehicle, your credit card debts, any and all debt obligations that were extended to you via credit and loans. On the right side list all of the assets you have, including the fair market value of your home and car, the balance in your checking and savings accounts, your retirement accounts etc. Now add up each column. If the total of your debts on the left side add up to more than the total of your assets on the right, you are what is sometimes referred to as “technically insolvent”. By what amount you are insolvent each time an account is settled for less than the balance owed is what will determine whether you meet the insolvency exclusion and thereby whether you will owe tax on forgiven debt.

Many will owe no tax on canceled debt when applying the insolvency exclusion. Others will not be taxed on the canceled debt of the first several accounts they may negotiate lower pay offs for, but as their unsecured credit card liabilities are decreased one by one through settlement, may find the scales tipped to solvency once settlements are reached on the remaining accounts. Some people will not qualify for the insolvency exclusion.

Should you be concerned about debt forgiveness and taxes from settling credit cards?

Yes, and you should plan and budget accordingly. But should your concern reach to the level of not pursuing debt relief through negotiating the balances down which creates the canceled and forgiven debt and the tax? That will depend. You are reading the debt relief program because you are unable to continue timely payments to your creditors. Did that fact change because you read this report? Not likely. Settling credit card debt is still a legitimate option to avoid filing for bankruptcy. Owing taxes on forgiven debt, if there are any that apply to your specific situation, will simply factor into your overall program design.

What you may now better appreciate is that debts discharged in bankruptcy are not taxed. Bankruptcy is the only legitimate way to eliminated the tax concerns related to debt forgiveness. If you can qualify for discharge of your debts in a chapter 7, and the filing of a chapter 7 does not force the sale of assets, some of which could have been sold to fund settlements and pay taxes (if owed), then chapter 7 is something that you should become more informed about.

What is certain is that you cannot afford your debt. Struggling to pay minimums for however long you have been stuck in a debt trap must end. Keeping this in perspective; owing any amount of taxes on forgiven debt is the result of you saving money and getting out of debt faster than could have been accomplished otherwise.

Update 12/2013: A friend and industry colleague, Charles Phelan, has developed a great tool to help you, or your tax preparer, get through the IRS insolvency form 982. Checkout the insolvency calculator available on his site: http://www.zipdebt.com/1099-C-insolvency-calculator.php

If you have questions about debt forgiveness and taxes related to settling unsecured debts like credit cards, post them in the comments below for feedback.

If you are new to the CRN site and would like to get comprehensive information about settling debt, you will want to read through the debt settlement section of our free online debt relief program. Get started with: An introduction to debt settlement.

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About Debt Relief Programs and Must Read Information

The debt relief program article series on this site are supplemented by different types of individual reports that are described and linked below. Most of them are a compliment to the debt settlement sections, and deal with a specific topic, or an important action step. The purpose of separating the reports from the main debt relief program sections are:

  1. Reader participation in the comments section of each debt relief program page should be consolidated and focused on each topic as much as possible. This helps to take on critical topics in bite sizes, and also enables a more condensed discussion in the comments.
  2. Not every report will apply to all debt relief program readers. Most of the reports should be read by people settling credit card debt.
  3. The debt relief program sections are long enough as it is.

Not all of the debt relief program reports are dedicated to the debt settlement sections of our free online education, but most of them are. What follows are brief summaries of the reports, and links to each. There will be additions to these reports over time, so you may want to subscribe to the CRN RSS feed in order to get updates.

Choosing the best debt relief solution for you.

There is no better way to approach dealing with debts you can longer manage, or afford to pay, than getting informed about the debt relief solutions available to you.

It is pretty easy to get misinformed, or misled, about your options for debt relief. Choosing the best way to get relief from debt, given your challenges right now, but with an eye on your future credit goals and financial needs, is critical!

This report provides a brief but concise outline about different debt solutions that may apply to you, and some of the criteria for choosing one option over another.

Get informed and get open feedback before reaching out to debt relief service providers to insure you are committing to the path that is right for you.

http://consumerrecoverynetwork.com/choose-best-debt-relief-solution/

Debt-roll-up or debt snowball for paying off debts.

There are several debt and credit gurus that use debt roll up as their “shtick” to market themselves to the world.  And why not? Debt-roll-up, or the debt snowball approach, is easy to teach, understand, and implement.

There is nothing controversial with telling people to pay all of their debts back in full. When you are a national media personality, having a shtick where no one gets hurt, is safe.

It’s also safe to say with roughly ¾’s of the nations population living pay check to paycheck (with only a few months of a bank roll to pay bills should a job loss occur), that conventional wisdom to paying off debt may not stand a snowballs chance in hell for many Americans.

For those whose finances have not yet deteriorated too far, this report will help you understand how to roll up your debt using your existing monthly cash flow. You may also learn how your situation could mean using debt roll up alongside other methods for credit card consolidation can allow you to be more creative and flexible with how you eliminate your debt.

http://consumerrecoverynetwork.com/debt-roll-up-pay-down-credit-cards/

Accounts to include in debt settlement:

Not all of your unsecured credit card debts belong in a settlement plan. If some or all of your accounts are not in advances stages of debt collection, you need to read this report to better understand how to approach dealing with small balance credit cards, credit union debts, and recent balance transfers you have made – and how settling these debts may not be the right approach.

This is, of course, if you have the luxury of being able to take a more strategic approach to settling debt. There are plenty of scenarios where you are in enough of a financial pinch where strategically paying some credit cards, and not others, is just not an option.

It is important to understand which accounts are best for settling no matter what stage of collection you are in, and no matter how flexible you can be from one account to the next. Knowing why creditors may not want to negotiation certain accounts with you can prepare you better for what you may experience later on.

http://consumerrecoverynetwork.com/credit-card-debt-to-include-in-settlement-plan/

Keep credit cards open when settling.

It is possible and even smart to keep accounts out of a debt settlement plan. This report will help you evaluate which accounts to keep from settling, and why some accounts are better to leave open than others.

Settling credit card debts you cannot afford does not have to be an all or nothing approach. In fact, you can help set yourself up for future credit success by not settling some accounts. On the flip side, you can cause yourself headaches, and cost yourself money, by not targeting some of your accounts in your debt settlement plan.

Having business credit cards along with personal ones can open up doors to keeping some accounts open while settling others.

If you have one, or even several credit cards with small balances, it is sometimes recommended to continue paying those, or pay them off, but then stop using them until your other debts are settled.

Married couples will often have more accounts that can be selectively left out of a debt settlement program.

http://consumerrecoverynetwork.com/keep-credit-card-open-when-settling-debt/

Set aside account and paying settlement agreements:

Negotiating and settling credit card debts and other bills is a process. Paying your settlement agreements is the end of that process.

 

The debt settlement industry will generally help you set up a different account where all of your settlement money will go as you are saving. That account is also what will be used to pay your debts off after each has been negotiated.

Even when you are doing DIY debt settlement, or getting coaching through the process, it is still a good idea to have a separate and dedicated bank account that you will use to save up, and then pay the agreements that get negotiated.

The simple effort of paying what was negotiated is better approached with some planning. If you have time to set yourself up for success, and eliminate potential headaches that could occur later, why wouldn’t you?

This is a good report to discuss problems with payments, or why it may be okay to go ahead and pay off a collector from your normal checking account.

http://consumerrecoverynetwork.com/paying-your-credit-card-debt-settlements/

How to deal with debt collection calls.

Phone calls from debt collectors and settling debt go hand in hand. It does not matter if you are negotiating debts on your own, or working with a professional, collection calls happen… a lot.

There are different approaches to managing your way though collection calls, and even times where you can be proactive and make calls to a debt collector. Gasp! I know, why in the world would you ever want to call a collector when you avoid the calls like the plague? The answer may surprise you.

You will also want to learn about the limitations that certain laws place on debt collectors regarding when and how they can call you. Calls to your work, friends, even the time of day and frequency with which they are allowed to call you, has limitations.

A federal law that limits calls and texts to your cell phones is important to know about given the fact that many of us no longer even have a land line.

You will also want to consider using technology to help you manage debt collector calls while you are settling debt.

http://consumerrecoverynetwork.com/handle-collection-calls-from-debt-collectors/

Date of last activity (DOLA). When you last made a credit card payment debt matters.

Whether you have set your sights on the earliest opportunity to settle a credit card balance with your bank; are in advanced stage of collection and concerned about settling a debt that has past the statute of limitations in your state; or where the SOL is approaching and your concerned that could mean you are at an increased risk of being sued for collection; this report will help you keep organized with timing settlements now, next month, or next year.

Forgetting your anniversary, or a birthday, can hurt some ones feelings. Forgetting when you last paid on a credit card… when you are trying to settle the debt… can hurt your wallet!

The DOLA for each one of your accounts that you were unable to keep up paying will also help you track how long a derogatory item can remain on your credit reports. This may be something you focus on now, while you are stressed about getting out of debt, but it is nearly always something people care about later, and for good reason.

The date you last paid your original creditor or lender can sometimes be changed by a debt collection agency that shows up on your credit reports. Tracking this is also a priority.

http://consumerrecoverynetwork.com/date-of-last-activity-credit-report-debt-negotiation/

Debt settlements must be documented.

Would you trust a debt collector at a bank or a collection agency to look out for your best interests? Umm… neither would I.

Settling your debts for less means you are not doing what you agreed to when you opened your account, which is pay certain amounts each month, and pay all balances owed. Since settling means you are agreeing to something different than what you started out with, you want to get the new deal in writing.

Settlement letters are so common to banks and debt collectors they will have a template in their computer to generate them. You, on the other hand, are going to be breaking new ground. You need to know what to look for in a debt settlement letter, and how to get letters sent to you, as well as how to review and act on written agreements to settle debt.

There are some really terrible debt collectors and banks out there who make getting your negotiated agreements in writing a real chore. There are ways to get around some companies reluctance to send you documentation until they have your payment, or date for payment on file.

There are some instances where you can work around not getting the settlement agreement you negotiated in writing.

Do not miss this report.

http://consumerrecoverynetwork.com/debt-settlement-letters-agreements/

Debt settlement and taxes.

There are a few talking points that naysayers use to convince you that you should not even consider settling your debts. Credit reporting impacts and debt collection calls are 2 big ones. And then there is the taxman.

Settling debt means not paying all of what you owe. The part you don’t pay when you settle is viewed by the IRS as you getting “free stuff”. They treat free stuff in excess of 600.00 as income. That means taxing forgiven debt as income.

What the naysayers conveniently fail to point out is that not everyone will pay taxes when settling credit card and other debt. They also fail to point out the net positives on a dollar basis, even if you do owe tax on forgiven debt.

It is exhausting to read and hear so many people wind bag on and on about how paying taxes when you settle debt is why you should not do it. They leave off the fact that you cannot afford your debt, aren’t paying, and would prefer to not be sued and avoid wage garnishment, property liens, and even frozen bank accounts. They also leave off the fact that creditors can and do cancel the debt later on, even when you do not settle for less (which means this report applies to you the same way).

Whether or not you will owe tax, when settling debt, is not complicated stuff. This report will help you understand the tax implications of settling debt as they will apply to you. You can share this report with your tax preparer if they are not familiar with this area of tax law.

http://consumerrecoverynetwork.com/debt-forgiveness-taxes-settled-credit-card/

If you are new to the CRN site and would like to get comprehensive information about settling debt, you will want to read through the debt settlement section starting with an introduction to debt settlement.

Do you have a suggestion for a debt relief program report, or feedback about the reports in general? We want to hear from you! Just post your feedback and suggestions in the comments below.

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