Credit card debt settlement is not complicated. But there are several factors to consider when determining the order and priority of different debts to be settled. The main ingredient to your success in debt negotiation is; money. How much you can bring to the table, and over what period of time, in order to fund offers to settle your credit card debt for less than the full balance.
How much of this key ingredient you have on hand at critical moments of opportunity will be the main consideration for how you prioritize, negotiate, then fund multiple debts.
In answer to a reader question linked below, I stated it is best to fund the lowest percentage offers first. There is a bit more to it than that.
Settle First with Your Bank or Original Creditor
By settling with your bank before charge off, you can avoid the accounts being placed in the collection pipeline that I discussed in a prior article about collections and the assign, sue, sell principle. You will find that you often maximize savings in the debt settlement process by dealing with many of your accounts in the early stages of default while they are still held with the original creditor.
What each credit card bank will settle at prior to your accounts entering into second stage collections is often a moving target. How long you have had the credit card, if you have made recent balance transfers, recent cash advances or large purchases outside of normal spending habits, all can affect the balance reductions that will be approved (even whether balance reduction will be offered at all). Keeping up timely payments to other unsecured creditors, but not the credit card account(s) you are trying to settle also may affect your reduced balance targets.
Credit Card Debt Settlement with Collection Agencies
While getting as much debt out of the way before accounts start to be placed with outside agencies is the first order of business with debt settlement, there are reasons to delay. With some of the credit card issuers you may strategically delay settlements because the percentage of savings will be better with a debt collector.
You should look to any and all available cash flow resources in order to settle as much of the debts that are optimized for reduction as early as possible.
You can settle credit card debt with a debt collector later on, but sometimes at higher rates. This is part of the process and is unavoidable for many implementing a debt settlement approach to getting out of credit card debt.
Settling Debt Placed with a Debt Collection Attorney Who May Sue You
Your primary goal with debt settlement will be to fund as many or all offers prior to an account being placed with an attorney who is authorized to sue you in order to collect.
There are often accounts that you simply cannot get to quick enough due to cash flow shortage.
You may have accounts with creditors who are known to use these types of collection attorneys more frequently and sooner than others. It will be an important part of your early debt settlement program design to identify these accounts, and where ever possible, make plans to limit your risks of being sued. Yes, there are methods to reduce these risks.
Negotiating past due credit cards placed with attorney debt collection firms happens every day, but the percentage of balance reduction is generally not as favorable as it could have been had the account been settled earlier.
Intelligent Design to Credit Card Relief
Once you identify your specific accounts and balances and match them up with the current policy of each of your creditors, you are ready to set your targets and expectations for reduction and can start to map out a plan to fund settlements in the first stage of collection using your projected cash flow in the first 6 months of delinquency.
In second stage collection you will have to react to each agency and their policies that are handed to them by their boss, your creditors. You will need to be aware of collection tactics and the best timing to get as close to the lowest offer for settlement percentages available. Your percentage of savings targets in second stage collection will be a moving target based on calendar dates, policies, the agency it has been assigned to, the type of credit card etc…
Following the design of a debt settlement plan sounds like a maze, but it isn’t. Not if you have access to all the details you will need to put the plan together and the ongoing assistance needed to navigate the often inevitable detours that happen along the way.
There are credible and reputable sources available to you that can help put the debt settlement program design in place and then assist you to implement it. The plan should be individualized. In all my years working with consumers I have yet to work with an identical file. Certain people’s situations may rhyme, but each is unique and different. Individualizing a plan will optimize your results.
This post is the result of a reader question I answered found here: Which debts should I settle first?
If you have credit card debt settlement questions or concerns about which accounts to negotiate first, second, etc., you are welcome to post in the comments below for feedback.