In the last several posts, we talked about foregoing a home equity loan or a loan against retirement savings in favor or other methods to get credit card debt under control. Those alternatives include defending credit card lawsuits and bringing suits to stop unlawful collection actions. We also talked about how you can use a credit counseling agency to gain control of your debt.
In this post, we consider another alternative: negotiating debt settlements on your own.
If you’re behind in your credit card payments, it’s likely you’ve received offers from the card holders to settle your debt for a one time payment of 80% or 75% or even 60% of what you owe. You’re probably thinking, “Terrific, If I had that kind of money, I wouldn’t be in this situation.” While that may be true, there are times debt settlement may help you get you a much needed “do-over”, with the right resources.
First, like just about anything debt related, you can negotiate with your creditors directly. You can answer when they call, and you can call them directly too. In fact, we encourage you to keep a dialogue with your creditors, no matter the method you choose to resolve your debt.
If you choose this route, keep these in mind:
- Keep scrupulous notes of all your dealings with creditors and collection agencies. Don’t discard any mail or paperwork.
- the date of the conversation;
- the name of the creditor or collection agency;
- the phone number you called;
- the name of person you talked with;
- the reference or account number provided by the creditor;
- the account balance on their books;
- the substance of the conversation and any settlement details.
- Also, note whether the collector tells you, “This is an attempt to collect a debt. . .” and anything that doesn’t feel right or make sense.
Other items to be aware of:
- Don’t agree to anything without having the creditor put it in writing.
- Ask the collector or to “validate” your debt. Learn more about debt validation here.
- A collector or “customer service representative” may try to intimidate you. Often, the collector will not volunteer their rock-bottom offer. Like most things, a settlement offer is negotiable. Just because they offer to settle for 75% doesn’t mean they won’t go further.
- Consider negotiating for more than just a reduction in the balance. For instance, you can ask for a short term structured payout of the balance or favorable reporting to credit bureaus.
- Likely, the credit card company or the collector will report the debt forgiveness to the IRS. Under the law, debt forgiveness is often treated like income, and you may be required to pay taxes on the amount forgiven. Even if you settle accounts on your own, it is wise to seek the advice of a tax professional so that you won’t be surprised next year when you receive an IRS Form 1099-C from the creditor.
- Sometimes, long after you’ve paid the collector and signed the settlement agreement, you get calls again on the same debt, or a review of your credit report shows that the debt is outstanding. The sad fact is that creditors will at times sell your outstanding account to another collector, either accidently or deliberately. And, unless you negotiate with the creditor to report your account favorably to the credit bureaus, they are under no obligation to show your account as paid in full or resolved.
- Even if you don’t negotiate a reduction in the balance, you may be able to get a better interest rate or a reduction in your minimum payment for a fixed term, just for the asking.
- Above all, do not agree to terms that you cannot fulfill, and don’t promise to pay what you don’t have. Just because Aunt Millie told you she’d help you out, doesn’t mean that you’re home free.
If you’re unsure about tackling debt settlement on your own, check out our next post on how debt settlement companies work and how attorneys, like Armstrong Kellett Bartholow PC, can intervene on your behalf.