If you are in over your head in debt, you have two options. You can file for bankruptcy or you can try to settle the debts. Typically, settling the debts damage your credit card the least, which is why many people choose this option.
If you think you are a good candidate to settle your debts, keep reading to learn the top mistakes that people make that you should avoid.
Trying to Settle too Soon
Did you know that credit card companies require you to be at least 3 months behind on your debt before they will settle? Many people assume that if they get in over their head in debt that they will just call the credit card company and negotiate a deal, but that’s not how it works.
Credit card companies obviously want to try to get the full amount that you owe. If they settle on your debt too soon, they could cut themselves short. If word gets out that credit card companies settle the moment that you call, everyone would max out their credit cards and then just settle for pennies on the dollar.
If you know you can’t make good on your debts, give it a few months. This way you can let the creditor know what you tried to do to get current on your debts. You can also show that you’ve been unable to pay the debt for the last three months or so, making the creditor more likely to work out a settlement with you.
Threatening the Credit Card Company
You may think that you have the upper hand when you try to negotiate with a creditor, but you don’t. Just because you aren’t paying your bill or you are saying that you can’t pay, it doesn’t mean the creditor has to do what you say.
If you threaten the creditor, chances are they will just shut you down. Most companies have policies in place for when customers ‘threaten’ them. The most common way people threaten creditors is by sending a ‘Cease and Desist’ letter. In other words, they tell the creditor to stop sending them threatening letters or making threatening phone calls. Creditors don’t take to this lightly and typically go straight to a lawsuit to get their funds.
Assuming the Credit Card Company Will Settle Even if You Have the Money
Again, debt settlement isn’t a ‘get out of jail free card.’ If you accumulated the debt, you need to pay it. If you truly can’t pay it, then there are options for the credit card company to work with you. If you have the money and just don’t want to pay the debt, though, that’s a different story.
Be prepared to show the creditor that you can’t afford the debt. The questions they ask and the proof of documents they ask for may seem intrusive, but it’s a way for them to make sure that you truly cannot afford the debt.
Threatening Bankruptcy Instead of Paying Your Debts
Many people assume that if they threaten to file bankruptcy that the credit card company will fold and agree to a settlement. That’s not the case, though. In fact, today it’s much harder to file for bankruptcy than ever before. You can’t just file because you want to file. If you aren’t in a situation where bankruptcy is vital, you may be forced to file a Chapter 13 bankruptcy, which is different from a Chapter 7 BK. With Chapter 13, you pay the debts back according to the trustee’s schedule rather than just wiping the debts clean.
If you threaten a creditor with bankruptcy, they will likely stop working with you. Eventually, they will file a lawsuit against you in order to get the funds. This would make the debts much more expensive for you.
Not Getting the Agreement in Writing
If you are lucky enough to get the credit card company to agree to a settlement, you need to get everything in writing. First, the issue isn’t going to get handled overnight. You may talk to several different people and have several different hoops to jump through.
You should make sure that you write everything down that you are told and to keep track of the people that you talk to about it. You should also request a copy of any agreement to be in writing. Anyone can tell you what you want to hear over the phone, but it’s not until the agreement is in writing that you can trust that it’s legitimate.
Not Negotiating for Settled as Agreed on Your Credit Report
As a part of your settlement, make sure you ask the creditor to mark the account ‘settled as agreed.’ If you miss this step, you could still get hit quite hard on your credit score. If the creditor just marks the account ‘paid less than owed,’ your credit score could suffer. It could also make future creditors nervous about giving you a loan or credit card.
It’s important to cover all of your bases when you try to negotiate your debt. Settling your debt is a viable option for many people, but it has to be under the right circumstances. Talk with your credit card company and be honest about the situation that you are in making you unable o pay your debts. The more honest you are and the closer you work with your credit card company, the better your chances of successful debt negotiation become.