Credit card settlement: How to settle and get out of credit card debt

• Credit card consolidation
• Payday loan consolidation
• Payday loan settlement
• Relief from collection abuse

Credit card settlement is a debt relief method that lowers your credit card balance through a tough negotiation process. Here, you offer the credit card company a lump-sum payment for a reduction in the amount you owe. If the credit card company accepts the proposal, you must pay the agreed amount in one lump sum.

It depends on the answers to these questions:

• How much do you have to pay to settle the debt?
• How much have you saved for settling credit card debt?
• Is the debt valid? (hint: that's not always as obvious as it looks)
• Is the settlement offer authentic?
• What is the statute of limitations in your state, and has it been exceeded?

Calculate how much you owe: Go through your credit reports and make a list of how much you owe on each credit card. If you have any doubts, call customer care and verify the amount.

Check the statute of limitations (SOL) in your state: Look at this before you even think about how to settle with a credit card. This is extremely important. If the SOL has not expired, then take steps to settle your credit card debt as soon as possible. If it has, you can avoid paying off your account.

Verify or validate your debt: Contact your credit card company and verify the debt if you have any doubt about the outstanding balance. If your account is in collections, then ask the collections agency to validate it in writing. By doing these two simple things, you can avoid overpaying or even being scammed.

Contact a debt settlement firm: Once you have verified and validated your debt, hire a debt settlement company to initiate the process of negotiating a settlement. Explain your conditions and requirements to the company so that they can act on your behalf.

The debt settlement company will negotiate with your creditors for a lower payoff amount on the basis that you are experiencing financial hardship. They will continue the negotiation process until your creditors agree to reduce the outstanding balance and waive late fees.

Make your agreed-upon payments: Once you enter a settlement agreement with your creditors, pay it! Your settlement company will send you the final agreement and its terms. Please read it carefully and pay the negotiated amount by the deadline.

Tip: Make sure your creditors don't report your account as 'paid as settled' on your credit report. Instead, ask them to update it to 'paid in full.' By changing one simple word, you'll save your credit score a lot of pain.

An affordable fee structure: Obviously, how much they charge you is an important factor. If the fee stricture is high, you will save less. The best credit card debt settlement companies won’t have upfront fees, hidden fees, or excessively high fee structures.

Accreditation: Accredited companies have passed through a certification and training process. They've learned negotiation techniques and how to communicate with creditors through their certification program. These companies have an edge over those without experience and training.

Good reviews: Generally, clients give positive reviews when they are satisfied with the performance of the settlement company. Check their online reviews to know what existing clients say about the companies you're considering before hiring them.

Privacy policy: You'll share confidential information with the settlement company. What will you do if the company shares your financial information with others? Check the privacy policy of any company you're planning to work with. You need to be sure that they won't share your data - and that they've taken reasonable precautions against data breaches.

The Federal Trade Commission (FTC) passed this law to scrutinize debt settlement companies and protect consumers from unscrupulous players.

Here's what that means to you:

• Debt negotiators must tell you how much to save before initiating the credit card settlement process. In other words, you must have the money you will need to settle.
• They must clearly explain the terms and conditions of the credit card debt settlement program you are considering.
• They need to indicate how long it will take to get results.
• If debt negotiators ask you to stop making payments on your debt, they need to explain the consequences of doing so.
• They can't ask you to pay an upfront fee for giving credit card debt settlement advice.
• They can only charge a part of the total fee for every account they settle.
• They will set aside your funds in a trust account, of which you will be the sole owner. You will be entitled to all the interest earned in that account as well.
• The FDIC-insured bank that offers the trust account must not be affiliated with the debt relief company. In other words, they cannot self-deal with your money.

Does settling a debt hurt your credit? Well, it can. When you settle a credit card, your FICO score will go down. But the magnitude of the credit score damage and how quickly you recover from it depend on many factors, such as:

• How your creditor updates your account status.
• What your FICO score is currently.
• The size of the debt you settled.
• The condition of your settled debts.

Credit card settlement is not as easy as you think. There is a lot to it. Here are a few mistakes you should always try to avoid.

Being too quick to send a cease and desist letter:

If you think you can end debt collection calls by sending a cease and desist letter, then you are right. The Fair Debt Collection Practices Act says collection agencies can't call you after receiving a cease and desist letter. That doesn't mean they don't have other debt collection tools in their box, however. Some debt collection agencies are quick to file a lawsuit against you when they get your cease and desist letter, just as a matter of policy. So it's important that you know that you may end the calls, but you're likely to get sued for the debt you owe.

Threatening to file bankruptcy:

The problem with threatening creditors with bankruptcy is that they won't believe you. They deal with debtors threatening bankruptcy every day, and very few people actually do it. So they'll be much more likely to call your bluff than cave to your demands. But what if you're not bluffing? Maybe you actually intend to file for bankruptcy protection. Well, that's not as easy a task as you might think. Congress had made it harder to file consumer bankruptcy, notably in the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005. You need to meet strict eligibility criteria, and you need to owe enough even to qualify. The credit card company most likely knows those rules better than you do, so it's best to leave talk of bankruptcy for after you've talked to the professionals.

You're not slaves to your creditors, and they're not slaves to you. Everyone has some freedom of choice in these kinds of relationships, just like any other. They may choose not to settle. What then?

Well, now you have to look at the alternatives:

• Debt consolidation: An approach where you set up an alternative payment plan.
• Debt management program: An approach where the nonprofit credit counseling agency helps you to lower interest rates.
• Chapter 13 Bankruptcy: An approach where the court helps you pay back creditors within five years.
• Chapter 7 Bankruptcy: An approach where the court helps you make credit card payments within 3-4 months.

Attorneys learn the fine art of negotiation, which makes them excellent at jobs like persuading creditors to lower your outstanding balance.

Experienced credit card settlement attorneys understand creditors and know how much to offer them.

They can give you expert legal guidance and help you avoid lawsuits.

They know your state's debt collection and credit card debt laws and can teach you about them as well.

Credit card settlement attorneys know the statute of limitation period in your state. That can be a crucial factor in deciding whether it makes sense to settle your debt.

They have an up-to-date view of the state of the credit card industry, including overall lump sum settlement percentages and recently passed laws. That puts them in a position to deal with creditors accordingly.

Which one should you choose? It depends on your situation. But an attorney can give you legal advice and help you deal with lawsuits. So, if you want to avoid legal hassles, then the best way to settle credit card debt is to hire an attorney.

Credit card companies differ on this, but usually, credit card companies won't agree to reduce your payoff amount unless you're lagging behind on your payments or you're in financial hardship. That's because when you settle credit card bills with a lump sum payment, their profits take a hit. When you're current on your payments, they don't incur that loss. Unless you can persuade them otherwise, creditors will assume that you can afford to pay the entire amount. So, they are more likely to reject your credit card debt settlement plan.

This depends on the expertise of the debt settlement agency. If they can negotiate well with the credit card company, you can expect to reduce your outstanding balance by around 50% or more.

Settling your credit card debt is possible when a lawsuit has been filed against you. When this happens, an attorney can help you settle your accounts out of court. They know how to negotiate with credit card companies to reduce the amount you owe and to stop legal proceedings. An experienced attorney will know how to answer a summons within a set time limit. They can quickly analyze your financial situation, make a reasonable settlement offer to the credit card company, and help you defend the lawsuit.