September 14, 2013
Do’s And Don’ts In Credit Card Settlement
credit cardIf you want to keep yourself from credit card debt or more specifically, falling further into it, you need to act immediately and find a solution. With the high fees and penalty charges that can grow your debt significantly, you have to cut off the problem to avoid wasting any more of your money.
Fortunately, credit card debt can be solved by almost any debt relief program and one of your choices is credit card settlement.
Also known as debt negotiation or debt reduction, this type of debt relief program aims to convince your creditors that you are in a financial crisis. That is necessary because you will negotiate with them for a settlement amount that is lower than what you owe. When they agree and you have paid off a portion of your debt based on the agreed amount, the rest of your balance will be forgiven and the debt will be considered completely paid.
The reduction of the debt is what attracts most people to credit card settlement. However, there are certain tips that you need to research on so that you can be successful in using this as your debt solution.
Things you must do when settling credit card debt
If you think that settling your credit card debt makes sense, you need to know how you will do it. Your knowledge of the whole process will get you to to succeed. Aside from knowing the process, here are some of the important things that you need to do when using credit card settlement.
It is always best to take action immediately if you know that your financial situation is not improving or even turning for the worse. Try not to wait up to 6 months when your debt is already charged off before you get in touch with your creditor. In some cases, working with them as soon as you know that you are about to miss out on your payments could save you some money in the long run. If you have some money put aside that can pay 30% to 50% of the balance that you owe, call your creditor to arrange for a settlement. Financial experts will tell you to wait but only if you do not have that lump sum cash and you still need to save up for it.
Relative to the previous tip, you should also enforce your patience. Think about it this way, the longer the creditor drags the negotiation, the more they can lose out on you. If you reach the statute of limitations, your creditors could end up with nothing. They will also lose any right to file a lawsuit against you. The statute of limitations for credit card debt is one of the shortest among the other types of debt – going as short as 2 years. When you pass that line, you don’t really have to fear your creditor anymore.
Prepare to show your documents.
Before settling with you, the creditor will ask to see your financial documents. This will prove that you are really in a financial crisis. Try to be ready with this so that the whole process will go smoothly. When they see that your income is small, they may be easier to talk to and negotiate with for a settlement.
Record and document all communications.
If you are doing your own credit card settlement make sure that you record and document all communication episodes and agreements. Before you send any payment, you have to hold a document that proves the creditor agrees to your settlement proposal.
Know the FDCPA.
The FDCPA refers to the Fair Debt Collection Practices Act. You need to research this law because it will tell you how the debt collection process must go. It protects consumers like you from abusive collection practices that creditors and debt collectors commit. When you know this law, you can detect if the collector is bluffing or not. Also, you can file a complaint against them to make sure that they will not abuse someone else.
Follow the settlement agreement strictly.
When you reach an agreement, make sure that you commit to that entirely. Do not miss a payment and send the agreed payment at the appropriate time. Otherwise, you could forfeit the whole agreement and you may be left off in a worse state than when you started.
Pitfalls to avoid when using debt settlement for your card balance
There are also pitfalls to credit card settlement that you need to understand and avoid. Here are the most popular ones that we have observed.
Don’t negotiate on your own if you cannot handle the stress.
Financial experts will tell you to skip professional help and just negotiate with creditors on your own. While this is a good way to save on the service fee, some people just cannot go through the stress and frustrations that debt settlement will put you through. A debt settlement company can help shield you from this while you concentrate on growing your settlement fund. Just be sure that you go to a reliable company. Make sure the debt negotiator is IAPDA (International Association of Professional Debt Arbitrators) certified and they are employed by a company that is a member of a reputable organization. One of the popular organizations is the AFCC or American Fair Credit Council.
Don’t overlook the negative consequences.
While debt settlement has its pros, you need to know the negative consequences too. You should know that any forgiven amount on your debt is taxable as an income by the IRS. Not only that, you must expect the decline in your credit score. When you try to convince your creditor that you are in a crisis, you will be defaulting on your payments. That can impact your credit report negatively.
Don’t make commitments that you cannot keep.
It is important to make a commitment that you can afford while negotiating. If the creditor is proposing an amount that you know you cannot pay, do not agree to it. There is really nothing much that you can do about it if you are in a financial crisis.
Don’t assume the creditor will say yes immediately.
It is also wrong to make the immediate assumption that your creditor will say yes to your settlement request. There are times when they will drag it on but remember, time is on your side. Just keep to your story and never promise more than what you can afford.
Don’t think settlement is the only solution.
Lastly, don’t think that your only option is debt settlement. There are other programs that will help you get out of your credit card debt. You have debt consolidation loan, balance transfer, credit counseling, debt management and bankruptcy. Make sure you have studied you other options before focusing on credit card settlement.
Here is a video that you can watch from Money Talks News. It discusses how debt settlement is an effective solution to your credit problems and why you should be careful in selecting the company that you will hire to help you negotiate your debts.
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