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Credit Card Debt Settlement Options

Are you struggling with credit card debt? O1ne Mortgage is here to help. You may be able to negotiate with your credit card issuers to settle your debt for less than you owe. While any arrangement that alters your original payment terms can impact your credit, the damage could be less severe than defaulting on your payments altogether.

Settling your debt is often less costly than hiring a for-profit “credit repair” service to negotiate for you. Before proceeding, it’s crucial to understand how the process works and the potential consequences it may have.

Debt Settlement Options

Here are some debt relief options you can seek from your credit card issuers:

• Debt settlement: If your account has been sent to collections (or is about to be), consider a lump-sum debt settlement. This involves offering the card issuer a one-time payment for less than your total balance. If accepted, the card issuer typically closes your account and reports it to the credit bureaus as not paid as agreed. This entry remains on your credit reports for seven years and negatively impacts your credit scores, although its effects will decrease over time.
• Forbearance: If you’re experiencing a temporary financial hardship, a credit card company may arrange a forbearance agreement. This grants you a short-term reduction or suspension of your minimum monthly payments and/or a waiver on interest charges and fees. This option is beneficial if you haven’t missed any payments or if your account is only recently delinquent.
• Workout agreement: With a workout agreement, your lender agrees to permanently renegotiate the terms of your cardholder agreement if you’re behind on payments. The card issuer could lower the card’s interest rate or reduce your minimum monthly payment. Note that they may also lower your borrowing limit. This option is worth pursuing if a lower monthly payment fits your budget.
• Debt management plan: A debt management plan is a repayment plan arranged by a credit counseling agency. The agency may negotiate a lower interest rate or monthly payment with your credit card companies. Once established, you’ll make one monthly payment to the agency, which will disburse the payment to your creditors. The agency charges modest upfront and monthly fees, though these can add up over time.

How to Negotiate Credit Card Debt

The steps involved in negotiating credit card debt are detailed, but here’s a brief overview:

1. Prioritize Your Credit Card Debt: Tally up your current balances, interest rates, and minimum monthly payments to prioritize your efforts and evaluate the benefits of proposed changes.
2. Consider Negotiation Options: Review the debt relief options listed above and decide on the approach that makes the most sense for each account. Be realistic about your ability to make payments and have target numbers in mind if you’re seeking a lower minimum payment or reduced interest rate.
3. Know the Risks: Negotiating credit card debt can be tricky and comes with significant drawbacks. Make sure you’re aware of potential consequences, such as the card issuer refusing your proposal or closing your account.
4. Call Your Card Issuer: Contact the customer service number on the back of your credit card to reach a representative. Explain your situation and the arrangement you’d like to pursue. Practice this with a friend if you’re nervous and be clear about what you want without getting impatient.
5. Get Any Agreement in Writing: If you come to an agreement with your credit card company, ensure you get the terms in writing via email, fax, or a hard copy by postal mail. No deal is legally binding unless it’s in writing.

Impact on Your Credit

All settlement options involve deviating from your original cardholder agreement terms. Even if your card issuer agrees to revise those terms, they’ll likely report the changes to the national credit bureaus (Experian, TransUnion, and Equifax). Settled accounts, accounts closed at the issuer’s insistence, and even account forbearance can appear as negative entries on your credit reports for up to seven years. These entries can harm your credit scores, but the severity of their impact will ease over time.

The Bottom Line

Negotiating your debt with credit card companies can be daunting and risky, but it’s worth trying if you’re overwhelmed with debt. If successful, it can bring welcome relief that does less harm to your credit than bankruptcy and costs less than for-profit credit repair services. Reflect on the root causes of your debts and consider steps to prevent future credit card missteps.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey with confidence.

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