Overwhelmed by Credit Card Debt? Settle your debts at a discount.

If you have been struggling with paying your credit cards and are missing payments, you may be able to end the cycle of high fees and high interest rates by settling the debt. Creditors will usually allow about a 180 day window for your debt to remain active if you miss payments. If you haven’t been able to get current or show some consistent history of payment attempts, that creditor may write off the bad debt and report it to the credit bureau as a charge-off.

Sometimes, just before the charge-off point, the credit card bank will send you a notice from their recovery department that you can settle the debt for somewhere between 50% and 75% of the amount you owe if you send in a lump sum payment. You may get the same type of notice again if the debt charges off and passes along to a debt collector or is sold to another company. If you can scrape up enough money to settle this debt, you’ll no longer be hounded by creditors or be exposed to future legal action. Most of the damage has already been done to your credit, so don’t look at debt settlement as a way to boost your credit score by any dramatic amount.

The settlement technique can work best if you are struggling now to make payments and have to stop paying on the credit cards just to stay current on your mortgage, car payment, or utilities. If you will recover from your problem in the future, you can still fulfill your obligation to deal with the debt by knocking off your old credit card delinquencies one at a time as you rebuild your savings.

Caution – be wary of debt settlement companies that offer to do the detail work on this for you. They may claim to settle your debt for 40% or 50%, but it forces you into charge-off status and ruined credit along the way. Also, the balance goes up so much while they are collecting their up-front commission that you wind up paying a lot more than you think. Also watch out for the scam artists that collect your money and never pay back any of the debt. You can negotiate these deals just as efficiently as the settlement middlemen, and won’t pay their high fees while doing so. If your debt has not yet charged off, a debt management plan will work better for you if you can afford the payment.

Back to Post | Next Suggestion