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 1 part timing. The best debt settlement deal 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 for the deals you can get based on how long it’s been since the credit card was paid; whether your bank has charged off your account, sold your account, or placed it with a collection agency.
NOTE: This post is part of our Debt Settlement Guide. If you’ve missed any of the previous content, or would like to start at the beginning, please see the links at the bottom of this page.
I covered this in more detail in the previous article about winning the debt settlement race. 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.
You must have an inability to pay your bills.
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. Which brings me to some housekeeping:
I 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. I am 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 customizations you can build into your debt settlement strategy that will better suit your situation, or the outcome you want to reach.
Because debt settlement typically only begins to be an option after you have missed making the minimum payments due for 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 debt collection.
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. Now, add to that the fact that 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 multi-billion dollar 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.
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:
- Assign your debt to a debt collection agency.
- Place your debt with a collection attorney.
- Sell your debt to a junk debt buyer.
Most banks offer the best deal based on timing.
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’re nice. It’s just math to them.
Take a break from reading and watch this video, where I quickly hit on all the reasons why timing your settlements is important to you and to your bank.
Throughout the debt settlement guide, I make references to collection stages. Here is what I mean when I 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 to 7 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.
- 4th stage debt collection, aka “late stage collection”, means your account has been placed with an attorney licensed to practice law in your state, or when collections have reached the courts.
When you commit to negotiating debts for less than the full balance owed, there are often good reasons for settling credit card debt directly with your bank during the first stage of debt collection. It does not matter if you are settling your own debt, or if you hire someone to help you. I want you to understand why, depending on the banks you are dealing with, it is better for you to settle with your lenders instead of waiting for your accounts to get sent out to a collection agency, or sold off to a debt collector.
Benefits to settling credit card debt fast.
Depending on the banks your credit cards are with, there can be benefits to settling with some as early as possible. Some of those benefits can include:
- The best savings (lowest settlement deals) can be had by negotiating with your original creditor.
- Settling early means the account does not get placed in one of the collection buckets that were described in the prior section.
- You can often limit the damage to your credit report by avoiding a charge-off (letting your account go passed 6 or 7 months of nonpayment).
Here are some examples of banks you could have an opportunity to settle with early:
- Bank of America
- Chase (Disney, Amazon, other Chase branded credit cards)
- Citibank (and cards serviced by Citi like Shell, Home Depot, Costco, etc.)
- Capital One
- Discover
- Wells Fargo
- GEMB and GE Capital now also known as Synchrony
- USbank
- First National Bank of Omaha
It’s important for you to understand some of the system that your credit card banks live in, and rules they are forced to live by. One part of the credit card lending system that has a large impact on how debt settlements get done in first stage collection is a not-so-little thing called “charge off”.
CHARGE OFF: The term “charge-off” describes an accounting function followed by your lenders. The meaning of charge-off does not change from one type of account to the next. But the timing of a charge off can change depending on the type of loan you have, and also due to decisions that can only be made by your lender. You do not have much influence on when your credit card gets charged off, other than making a payment to stall a charge-off from occurring (which is only something I would do for a specific strategic purpose, like needing another month to raise the money you are missing to negotiate the final pay off amount).
When it comes to unpaid credit card accounts, a charge-off occurs when the credit issuer either chooses to, or must, recognize an unpaid loan balance as a loss. And for lenders, losses are bad news, so most credit card issuers wait out the full amount of time they are allowed to charge-off your unpaid debt.
The time frame for the bank to recognize the loss on your unpaid credit card balance is outlined in GAAP (Generally Accepted Accounting Principles), and is typically 180 days of consecutive nonpayment, or what the Office of the Comptroller of the Currency (OCC is the primary regulator of national banks) calls “seven zero billings”.
How does charge off affect settling?
Understanding the timing and impact of your credit card accounts charging-off will give you an advantage in your planning and debt negotiations timing. Identifying which creditors to settle with using your available cash flow in the first stage of collection is part of the prioritization that I cover in consults, and with clients.
Settling debt in first stage collection with a lump sum, or getting payment terms with your settlement, can be the difference maker. Why wouldn’t you want to:
- prevent more than one account from charging off and going to a debt collector that may be more aggressive?
- negotiate lower pay off settlements with your original creditors if it meant you could save more money in the process?
Many major credit card issuers allow pre-charge-off settlements combined with 90 day payment terms. Depending on your situation, this means you may be able to settle more accounts prior to charge-off than if you were only settling with one time lump-sum payments.
Example: You have a $9,000.00 credit card balance outstanding and the account can be negotiated down to $3,300.00 in your fifth month of missed payments (between 150 and 180 days late). You could set it up so that you make 3 payments of 1,100.00 in a 3 month period to pay off the settlement.
If you use this strategy, make certain you are confident you will have additional money to follow through on payments in months 6 and 7.
Collection calls or letters when you settle later.
You WILL get collection calls! Your patience with the debt settlement process will be tested more by debt collection calls than perhaps anything else that may occur along the way. You need to know how to manage the calls and prepare yourself in advance for them. If you are behind with payments at this time, you already know all about the frequency of collection phone calls. Be sure to read through my article about handling collection calls and how to use technology to limit your exposure to them.
Why do you get so many collection calls?
Unsecured credit cards are… unsecured. Missing credit card payments is not like skipping payments on cars and homes, which can lead to repossession and foreclosure.
In the early stages of credit card collection, there aren’t many teeth behind the debt collector bark. Repeated collection calls and letters from your bank are about the only tool available to the collector (other than suing you in court), in order to get you to make a payment. Until a bank or collector gets a payment, or a plan for payments, the barking continues.
Phone calls are your friend. Certainly not all of the ones leading up to negotiating the deal, but you can literally make thousands of dollars in one, or several well planned and timed calls to your bank. But let’s get prepared with what to say, and not say, before you pick up the phone.
Continue following along in the debt settlement guide with How to Talk to Bill Collectors.
Anyone with questions or concerns about timing your settlements with your banks, and your particular situation, can post in the comments for dedicated feedback.
This Debt Settlement Guide includes:
An Expert Guide to Credit Card Debt Settlement
How and Why Banks Settle Credit Card Debt with You
Types of Accounts to Include in Your Debt Settlement Plan
Why Settling Credit Card Debt is Like a Race
How to Settle Credit Card Debt Quickly (you are here)
How to Talk to a Debt Collector
How to Negotiate Credit Card Debt Successfully Yourself
7 Largest Credit Card Banks and How They Settle Debt
Get Debt Settlement Letters and Agreements from Collectors
Paying Debt Collectors After You Negotiated a Settlement
3 cards with chase total 27,000. Reasons, Divorce, ex husband used my cards unbeknownst to me he was court ordered to give me 5,000 towards it which He did. I had back surgery can’t work. Home foreclosed on and living with family until I get on my feet. I offered chase 8,000. I explained all of this and they said no deal. I am currently charged off with them in collections. What can I do?
We can help you get this resolved. You can click the get debt help tab in the upper right corner of the page and create your user profile (secure and private), and when you get to the part where it says schedule to talk with an expert, bring up that calendar and pick the day and time you would like for me to call you to go over this.
So interesting reading. I have some debt that I am current with Boa Card, and Wells Fargo Card, O Interest card for 14 months I am managing this debt okay. I opened up a Chase Card for my son because he had bad credit and needed a card to travel for his Job. Because of his bad credit I had to get the card and have him on the card as an authorized user. Well he maxed it out on 3 months and I closed the account I never used the card at all. He is now working again, and will to help with this debt. Unfortunately they are charging me 25% plus interest on the card. The debt is $17,000 and I’m 45 days late on paying the full monthly amount . I though if we did a settled term debt and offered $300 or $400 per month for a year that they might bite at it. I have had good credit all my life pay all my bills auto deduct , however my credit slipped from 730 to 650 since i opened up this chase card. There’s lots of scammer’s out there that charge an arm and a leg. Any advise would be great I’m trying to protect my credit score and get it back to 750 but feel if i don’t do something soon it will be to late. Chase told me to pay $200 per month for 4 months and then they would look at a Hardship case, but i don’t think i want to go that route. Is there away to improve my credit ? and what are your fees
You would immediately want to catch this account up if your focus is all credit score. DO not let it fall another month behind.
If you are trying to settle the account, it will hurt your credit score more than it is already, and you will likely want to be several more months late if you are tryign to settle for the best savings.
We can help you with the settlement if you need it, and we charge nothing until we are done, and you pay the deal we get you. Your negotiation service fee is 15% of what you saved in the settlement.
Mr. Bovee;
I am a disabled veteran who can no longer afford to juggle all my debit from active duty. My income is VA Disability as well as social security, I believe in my state (Virginia) that means I am non garnishable. I was wondering if this is something I should bring up to the debt collectors to make them want to settle faster or cheaper.
It can be. I often want to outline the hardship scenario that caused the inability to pay then, and now. There are times when sharing with debt collectors that you are an informed consumer and know that they cannot collect from you, even if they got a judgment, is a good idea, and times where that is not going to result in anything different than if someone was not judgment proof.
Your ability to get the best settlement savings is often going to be more about who you are dealing with, that what you are dealing with.
Who are the creditors, balances, and length of delinquency on each account?
Mr. Bovee,
I have (3) “charge-off(s) as bad debt” showing on my credit reports. Ironically, enough they were all reported by Synchrony Bank (SB). The (3) accounts were originally (1) Lowes, (2) Amazon and (3) Home Depot, which I assume SB was the underlying original creditor. I have the money to pay them in FULL for all (3) accounts. My questions are:
1. How would I know if they have sold the debt yet?
2. Should I call SB and see if they will do a Pay-for-Delete (PFD)?
3. When calling in to SB do I ask to speak to a 1st line supervisor or would the 1st line even have the authority to make such an arrangement (PFD)?
4. If SB sold off the accounts already, is it too late at that point to have the original reported information removed or at least reduced to something less negative? (assuming I have paid the new debt holder either in-full or at a reduced amount).
You can call Synchrony and find out who they sold or placed your accounts with. They will tell you.
Synchrony will not do a pay for delete.
Talking to a supervisor about pay for delete is a wast of time.
Once the debt is sold you may have an additional credit report item to contend with, and there will be nothing you can do about Synchrony still.
Hi Michael,
1. My question is how will I know if my accounts are in the 2nd stage — meaning, I have received a letter from a Collection Agency that indicates that the account has been placed with them by the original creditor, in this case Bank of America. Does that mean that BOA still holds the debt and that this Agency (Gatestone) did not legally purchase the debt from BOA? I have some other accounts in which I have just received similar letters.
2. I had placed my account with a 3rd party debt settlement company. They did settle one account with Barclays. The original amount was $9,000. They settled it for $4,447; however, I paid them 22% on the $9,000 for a service fee. I have decided that this is too much money to pay them and that I would rather try to settle these accounts on my own. What is your advice regarding Debt Settlement Companies.
3. FYI, I live in Texas
Thanks for your help!
Yes, BofA still owns the debt they sent to Gatestone. Check out this video about negotiating your settlements with Gatestone.
I typically suggest people inclined to settle debt on their own to try the DIY approach. Be sure to read that article link. It is one piece of a 10 part series about settling debt yourself. Some people should get help, but I have helped tens of thousands with DIY negotiations.
When it comes to settling with BofA, if you are concerned about your ability to negotiate a 20 to 30 percent deal, call in for a consult, or fill in the talk to Michael box in the right column, and I will email you to set up a call.
Thank for this series! Im am so thankful I found CRN.
I have a question about what state laws apply to me? We have moved several times due to my husbands career. My three accounts from US Bank that are going into charge off this month were opened on CO. I stopped paying in KS, and now we are living in IA with a chance we could move again way before this debt is resolved.
What state do the take the debt collection laws from? Also what if we live in IA but have asset in CO (house)? Or if the statute of limitations “expires” because of a move to a new state?
You have plenty of moving pieces Jessica. Typically the the state you live in at the time a creditor is looking to sue you will apply. But that can change based on certain things too.
Before you focus too much on the SOL and where you can be sued, think about what you will do to resolve the debts going forward. What are the balances on the 3 accounts with US Bank? What are your goals for resolving them?
Cancer treatments have left me in financial ruins but with my life! A list is the following of cc debt that I owe.
Synchrony $12,225 last payment made 10/14/19
Citi $2370 last payment made 11/11/2019
Barclay $12,275 last payment made 12/5/19
BOA $15,430 last payment made 11/25/19
Chase $18,011 last payment made 11/11/19
Sears citi $4530 last payment made 12/17/19
Discover $12,196 last payment made 12/6/19
TD $6457 last payment made 12/16/19
Discover $10,855 last payment made 11/22/19
Discover $3189 last payment made 12/16/19
TD $8000 last payment made 11/21/19
Synchronyhome $4500 last payment made 12/10/19
BOA $22,700 last payment made 11/16/19
I have saved up $5000 to start settling debt, I have not received any offers yet, I am assuming I should start with synchrony that was last paid 10/14/19 but not sure. I am able to put aside about $1000 a month towards debt and hoping to up that to $1500 once I am back to work. I haven’t answered any of the phone calls from the banks yet. Also would it be wise to make a small payment to other cc so that they don’t charge off my debt to give me more time to save? Thanks!
We can cover all of this strategically in our phone consult this week.
Hi Michael, I just had a simple question. If I settle on my credit card after is pay off whats happens to that Line of Credit that I had with the back. Do I still have it or they take it out of my hands becase I settle with them insted of paying it all off?
I do not understand what you are asking. Please post a reply and rephrase your question or concern.
What happen to the line of credit when you settle with the bank to pay of that credit card. Does the bank take that away, can you keep using it after is paid or what.?
I am not sure what you are asking here, but any account you stop paying in order to settle is typically closed before you are able to negotiate your settlement. In the instances where that was not the case, the settlement closes the account.
If you have an LOC with the same bank you have a credit card with, and you are settling the credit card, it is fairly common to have the other open and current account closed.
Hi Michael,
Sooo glad I found your site. Hoping you can advise me on best route to take….trying desperately to clean up my credit and ordered annual reports. Wells Fargo is one I would like to tackle ASAP. My credit limit is 2000 closing balance is 2559. My date of last payment is 10/2014 but it hasn’t showed up as a collection account yet. Would like to prevent this and get this account in a better standing than its current “charged off” status. Was going to write them a letter and try to settle but watched your video and it says not to write them, should I call them instead? What is my best course of action to remedy this credit card debt? Btw I live in Florida.
Thanks so much in advance
I would call to negotiate the settlement with Wells Fargo, but get the agreement from them in writing before you pay it. They can mail or fax a settlement letter to you.
Located in California and Losing my job, so will no longer be able to pay credit cards. Would like to settle. I can probably keep making payments on the 2 smaller accounts if that will be less harmful to my credit, Is it best to just stop making payments on the Discover, or on all 3? Also, do I bring up the topic of settlement after a few months, or will they reach out to me? I have family willing top lend me some money to get rid of the debt
Discover:$ 14,000
Citi: $4,900
B of A: $2,500
If I had no source of income I would likely want to resolve all 3 accounts.
How long have you had the Discover card? Is any of the balance owed from a balance transfer or cash advance in the last 24 months?
The topic of settling is something to bring up in month 5 of non payment, and typically not before. If they bring it up, you still want to wait until the time to settle is right.
Thanks for the quick response! I have had the Discover since 2009. Just a slow build up and not making large enough payments. The B of A balance is a transfer from the Discover on a promo interest rate. No balance transfers or exceptionally large purchases. Citi card member since 2012, and the B of A since 2007.
Do you want help getting the settlements, or are you a DIY-er all the way?
If you want help call in for a consult at 800-939-8357, ext 2.
If you are a DIY-er, be sure to read through this entire article series (all of the links at the bottom of the post above). Ask questions in the comments along the way.
Live in texas..
Have 6300 bank of America cc
12300 unsecured loan one main fin.
27000 unsecured best egg loan
30000 unsecured lending club loan
Can not afford these anymore…
Am 2 months late on all…
what order should I try to negotiate and when
.
Assume you need 28k to settle them all. How soon can you raise that money? I can better answer your questions when I understand the resources you have to work with and when.
so i have given info to fresh start legal, us enrollment group and freedom debt relief. i have gotten varying figures and payoff times. some cards they say can be included and some that cannot. freedom debt relief rep tells me i need to include every card i have but save maybe one with an under 500 balance and to try to keep out others which i have been current on is of no value because all the ones i put in a program will see that i am still paying on others and won’t settle if they see i can still pay on others. however, the other companies i have spoken to have not told me that i need to do that. for example, say i have two cards with two stores but its the same main bank that owns both cards and i am current on the one but not on the other, whats the best thing to do there. i just cannot catch up on all of them but i would like to catch up on as many as i can.
There are opportunities to keep cards current with minimum payments while you settle others. But it can make a difference which ones you try that with.
I think we are scheduled for a consult a little later today so I will get more into the details then.
can i get your opinion on using debt settlement companies like us enrollment group? they said they are accredited with bbb but its prime solutions that is with BBB not us enrollment group. they offered a three year payment program. i have more info but id rather discuss is more privately. thank u. about 3 months behind on certain cards but totally current on others.
They are already lost me if I found they told me something that was not true. But the bigger problem with most debt settlement companies are the fees they charge.
Hi. Hoping you can help. Here are our debts:
Husband:
Fifth Third–21,366
Capital One–21000
USBank–4000
Myself:
PNC–9,000
PNC-4500
Chase–4000
Figures are rough estimates. Making minimum payments on all except Fifth Third. It’s roughly 150 days past due. We had a life event and had to live off our credit cards. Mortgage is also through Fifth Third. Fifth Third will only take 10000 off for a settlement. Offered 6500 which is 30% settlement. Not quite sure how to make even the minimum payments to pay all the basics we need (house, food, gas for work, etc.). Thanks in advance.
Call me for a consult Marie. I can dig into the details and make some suggestions based on some answer to my questions. You can reach me at 800-939-8357, ext 2. You can also submit the “talk to Michael” form to the right on this page.
Hi Michael,
I have 2 credit cards that I want to settle and I am so happy I came across your website. I have BOA credit card and citi card. I have not been late yet on those cards and please advice how many month do I have to wait to settle directly with them? Also can you advise me approximately at what amount can I negotiate if I have 12,000 BOA and 10,000 citi. Thank you so much.
You will typically find the best settlement outcomes with major credit card lenders (like Citi and BofA) when you are negotiating when the banks consider you more 5 months late.
Things have changed and/or changing as it relates to when to settle with the bank, or letting it go to an outside agency in order to get a much better settlement.
I would encourage you to call in for a consult about your particular situation. You can reach me at 800-939-8357, extension 2 rings to me. I will ask you some collectability questions (how debt collectors would view you), and suggest where you can land with a settlement range of between 20 and 40 percent of those balances.