Debt Settlement: Credit Card Programs

Credit card debt settlement involves settling your debt for less than the full amount owed. Debt settlement can be arranged directly between a borrower and creditor. You can also use a debt settlement service or consult with an experienced debt settlement attorney who can help to settle your debt.

How Does Debt Settlement Work?

Debt settlement becomes an option on unsecured debts, such as credit cards, because these types of debts can be discharged in bankruptcy and because it can be difficult for creditors to come after you and collect the debt if you default. As such, if a creditor believes that you are unlikely to continue paying your debts or that you may declare bankruptcy, they may be willing to work with you to settle your debt for less than what you owe in order to make sure they get something.

You may be able to settle for as much as 65 percent less than the full amount owed, although a lot depends on whether your creditor believes you are able and willing to pay, and on how much you owe.

The Settlement Process

While the debt settlement process can differ slightly depending on whether you try to settle debts yourself, or whether you go to a debt settlement firm or an attorney, the general process is similar:

You must be behind on your payments. After all, a creditor is only going to negotiate if they fear they won't get their money; if you are paying on time, they won't have that fear
You must propose a settlement offer for less than the full amount due. It is usually helpful if you are able to propose to make this payment in one lump sum instead of over time, as creditors can then be confident that they will get the money
The credit card company must agree- in writing. Do not send payment until the creditors have sent you a written letter signifying that they will accept payment in full.
You pay off your debt. The account is usually closed by the creditor at this point.

This will hurt your credit, both because of the late payments and because the debts will show as settled and not paid in full. Still, arranging this type of debt settlement through a debt settlement program or through help from an attorney or debt settlement service can help you pay much less for your debts.

Getting Help

If you are considering debt settlement, speak with an experienced debt settlement attorney who can negotiate with your creditors for you and help you to get the best possible deal.

Need Debt Help?