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Negotiating settlements on credit card debt is one of the fastest ways to reduced large portions of your credit card debt permanently. Although there are many companies advertising on radio and television to work for you in settling your credit card debt, it is possible to do it yourself without paying additional fees or a percentage of the amount you save to a third party.  Here are five major points to keep in mind when settling your credit card debt.

1. It will be necessary to stop making payments on your credit cards.  

Generally, it seems that most banks, credit card issuers and other lending institutions are not interested in negotiating settlements with customers who are current on their payments.  In my experience, most people who could save many thousands of dollars through debt settlement will not do so because they do not want to miss payments for two reasons.  

• First, they are worried about their credit score. The fear of hurting our credit score is quite common.  Though I do not suggest that you should toss all concern for your credit score to the wind, I do suggest that you include consideration of your credit score as one point in a larger context of your overall finances.  Your credit score is a tool that lenders use to determine the risk in lending to you. In many cases, having a lower credit score does not mean that you cannot get credit, only that the credit will come at higher interest.  If the amount you can save through debt settlement greatly exceeds the amount you will pay through higher interest on a future loan, than the benefit of settlement outweighs the drop in credit score. ?

• Second, they fell somehow "wrong" in missing a credit card payment.  This is because we, as individuals, are taught to attach a great deal of emotion to our finances general and negative emotion to debt and the inability to pay off debt.  By separating all emotionality from debt, you will be more successful in your settlement negotiations, which brings us to point number 2.

2. Treat debt settlement like a business negotiation, because it is.

There is nothing wrong with you for being in debt.  You are not a failure or a bad person.  Our world runs on debt, every dollar in your pocket represents debt (the U.S. government owes the Federal Reserve $1 for borrowing that note).  You are encouraged to borrow for school, cars, clothes, gasoline, homes and business.  And in today`s economy, many of us are turning to credit to meet the shortfall between our income and our monthly expenses.  This is the world we live in and the businesses that have chosen to lend money understand that life happens and some of their loans will not be repaid in full. The work those numbers into their business model they same way retailers know that November and December will be big and January will have a lot of returns. So when a collection`s agent tries to intimidate you buy calling into question your integrity because you are asking to settle the debt for less than is owed, remind yourself that this is a business deal and in business everyone is trying to negotiate the very best position for themselves or their company.  You are the C.E.O of your own corporation, the corporation of You, and You have the right to reach the best financial terms for the health of your company as any other C.E.O. of any other business.  One of the primary functions of every corporate C.E.O is keeping an eye on the company`s debt balances and negotiating out of debts, writing off debts, or selling debts in order to raise capital. You read about it every day in the Wall St. Journal. And they never take it personally or tell themselves they are bad people for doing it. If you`re going to play the same game, put yourself on the same playing field.

3. Be patient.  

In my experience, it takes three to four months from the time you stop making your payments before the banks or credit card companies will begin making settlement offers and their first offers will be very high. My own first offers ranged from 85% of the total debt to 92% of the total debt. One company offered to settle for my entire balance less the interest that had accrued from the time I stopped paying (no savings there).  Usually, around the six month mark the bank will be getting ready to send the debt to a collection agency who will pay them far less for it, sometimes as little as 5%. Before that happens, they`ll be motivated to settle with you for more than they`ll get from collections.  Generally, I hear about settlements in the 30-35% range as common after six to eight months of negotiating. I`ve heard as low as 15% but rarely.  One of the biggest drawbacks to using a service agency to negotiate your debt (even one of the honest few) is that they don`t have the same stamina as you. They are either working for a fee and what to put in as few hours as possible to up their hourly rate on that fee, or they are working on a commission and want to book it as quickly as possible. So when the first offers start coming in at 50-60%, they may tell you to take it because they book their fee and move onto the next client.  You, on the other hand, will have the patience to wait two, three, four more months for a settlement in the 35%, maybe even 20% range because it means a greater savings to you.

4. Get your settlement agreements in writing. 

I cannot stress this enough. I had one bank offer me a settlement, which I accepted, then tell me to send them the money and afterward they would send me a statement saying the account was settled in full. I asked, "Would you pay for a house and then look at the loan agreement?" Of course not. I had another bank settle with me then send the balance (the amount written off) to a collection agency to try to collect on it. If I hadn`t had had a settlement agreement in writing I might have been stuck with that debt but with the agreement it went away.

5. Live your life.  

Too often we allow serious debt and the stress associated with it to define our lives, our relationships, our moods and our actions. Along with giving up the emotion attached to debt, give up the sense that you have to stop enjoying life just because you are having financial troubles.  Smile, walk in the park, go to a movie, eat ice cream, love you spouse, laugh with your children.  You have the debt, live with it, don`t let it live you.

 

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James Lindon, Ph.D. Patent Attorney
Lindon & Lindon, LLC
Cleveland, Ohio
Patents, Trademarks, Copyrights, Pharmacy Law, Litigation
[this is not legal advice - provided for discussion only]
Intellectual Property for the Individual and Small Business: Identify, Protect, Enforce, Defend.
"Fools rush in where angels fear to tread."
http://www.LindonLaw.com

That`s a great question, James, the morality of settling debts for less than
the amount borrowed, and one that I faced squarely during my own
experiences settling credit card debt.

I did a lot of research and spoke to many people and what I learned is
that we as individual people are somehow taught, father to son, mother to
daughter, teacher to student, a different set of values when it comes to
debt that businesspeople who run banks and corporations are taught. We
are taught to emotionalize our debt and treat it from a moral perspective.
"If you can`t pay back your debts you are somehow a bad person."

Businesses do not attach the same emotion to debt and borrowing. In
business, debt is a commodity to be bought, sold and traded without an
emotional component. Furthering the example in my post above, if the
CEO of an airline with $500 million in loans suddenly sees jet fuel prices
rise ten fold (as they did last summer) and must file bankruptcy, nobody
points a finger at him and says "you bad person, how could you write off
half a billion in debt." He restructures, finds new capital, and the same
banks who wrote off his debt come back offering new loans. That`s the
borrower side in business.

The lender side is also unburdened by the concept of morality in debt.
They operate solely on the basis of legality. If it`s legal they can do it, not
legal they can`t. What`s more, usually, if it`s not legal they lobby the
government to make it legal. For instance, do you remember a few years
ago when everyone started complaining that their credit cards which were
carrying balances around 14-16 percent suddenly jumped to 29-32
percent? Why do you think that was? It`s because states are by law
allowed to set the legal limits for charging interest and each lender had to
abide by the limit set in its home state. Wanting to charge more interest,
a consortium of banking interests lobbied the federal government to pass
a law that overruled state law so that they could charge twice the interest
as their home state allowed. Many could argue (on a moral level) that
30% interest is usury, but the issue to the banks (and Congress) wasn`t a
moral question, it was a legal question. New law made the practice legal,
therefore it was allowable.

Which brings me back to an individual negotiating settlements on debt.
The banks loaning the money are operating from under the many laws
that protect and support their business. I believe that individuals should
enjoy the same right and operate under whatever applicable law protects
and supports us. For the moment, negotiating settlements on debt is
legal, so to me the question of right or wrong from a moral perspective
isn`t applicable. Perhaps if you borrowed money from a friend who was
loaning it out of moral kindness then paying back under moral kindness
would apply. Banks loan money as a business venture with no moral
position and borrowers have the right to meet them on an even playing
field.

As for your question about credit scores, yes, settling debt does affect
one`s credit score. But there are considerations there, too. For a deeper
analysis of why we shouldn`t allow credit scores to rule our lives as we do,
read my blog on credit scores at http://settleyourcreditcards.com/blog/?
p=23

I think we agree that there is a difference between morality and legality.  You seem to be taking the view of a neutral anthropologist in this: "These days we people in America think it`s moral to treat our children with kindness.  But in some cultures, years ago, children were regularly sold into slavery or killed as sacrificed to the gods.  Who can really say which is right or wrong?  We just have different points of view!  Same with borrowers and lenders.  Nothing is really right or wrong – it’s what you can get away with, right?"

 

Well, yeah.  Different points of view.  All equally VALID??

 

I disagree that "the lender side is also unburdened by the concept of morality in debt."  As a lawyer that does not demand that every client pay me every cent in advance, I am on the lender side constantly.  When I have a client that refuses to pay me, I make a moral assessment of that person.  Maybe they care or don’t care. 

-------------------------

James Lindon, Ph.D. Patent Attorney
Lindon & Lindon, LLC
Cleveland, Ohio
Patents, Trademarks, Copyrights, Pharmacy Law, Litigation
[this is not legal advice - provided for discussion only]
Intellectual Property for the Individual and Small Business: Identify, Protect, Enforce, Defend.
"Fools rush in where angels fear to tread."
http://www.LindonLaw.com

This whole question has been bothering me for quite awhile, particularly having been bashed in the head with my own financial problems. The legal issue is one thing, the moral issue is related but separate.

It`s only been lately, given the tremendous changes in the general economy, that the moral issue begins to clarify.

There is a society and all the markets within that society. IF, and it`s a Big "if," a person borrows money then intentionally doesn`t pay it back they`ve stolen the money. But what about unintentional, and why would there be such an increase in that lack of intent?

James, you know that intent is a key difference in a charge of murder or manslaughter, right? So the question is whether or not the borrower faces a changed circumstance outside of intent, in my opinion.

In a free-market approach, people buy and sell and there`s usually a reasonable balance between products, their prices, the ability customers have to buy the products, and the money supply. Each business employs a person for a wage. The wage applies to that person`s purchases.

What happens when the government steps in to "help," and uses the Keynesian "inflation-interest rate-recession" process? What about how minimum wage laws force the economy into an artificial state?

Add to the equation the federal "regulations" that allow financial institutions to manipulate jobs, business, value, and markets to the astounding level we see today. What about mergers and acquisitions, off-shore values in commerce, outsourcing, payroll taxes, OSHA regulations, environmental regulations, and the massive amount of securitization of debt?

Anyone can borrow, say, 20% of their net income and fully expect to pay that loan back. IF we have a normal market environment where people want to work and employers want to hire.

But throw the government monkey-wrench into the mix, with the stunningly bad results of political self-interest, debt spending, fiat money, tax policies, and on and on, and the average citizen hasn`t a chance. Especially when that same government controls interest rates and allows millions of illegal workers into the mix.

What would California`s budget look like if they immediately stopped all subsidies to illegal immigrants and offered support to only legal citizens? What about the job market, and the capability of people to continue earning an income? With no rein at all on just that problem, how does a "regular" person compete?

Look at the Fannie Mae fiasco, where banks were forced to lend money to high-risk borrowers. You can`t apply a 1950`s morality to a 1990`s set of legal conditions.

In fact, the entire social contract has failed and is now in suspension. That`s because the government has both attacked the average citizen, and aided-and-abetted the criminal actions of the nation`s financial institutions.

I would argue that re-negotiating debt today is a "self-defense" response to charges of moral action. The federal and state governments have invaded the markets, skewed them entirely out of functionality, and conspired with lending institutions to ruin much of the population.

Well, I am pleased to be involved in an intelligent conversation about the
issues with you both. James, I see your position as an attorney who
becomes a lender when your clients owe you on their bills. And though I,
personally, hesitate from labeling anyone as a "good" or "bad" person, I
certainly support you in labeling a client as "good" or "bad" as a client if
they aren`t paying their bills. And you have the right to no longer
represent a client whom you judge, through their actions, as unworthy of
your services, the same way a bank has the right to deny me credit in the
future.

However, would you tell your client AFTER performing services that you
were increasing your hourly rate on work that had already been done,
then bill them for the difference? Isn`t that what banks do when they
increase interest rates on a card and apply the increase to existing
balances? In some cases, yes, there is fine print in the agreement that
points out when they can do this and in other cases there is no initial fine
print because at the time of the agreement usury laws were different,
then the have usury laws change and applying them retroactively. If it
were a criminal case, would that be ex post facto? In these cases isn`t it
the banks, then, who are opening the door to "re-negotiation" by
changing the terms of the lending?   

Craig brings up some excellent insights about the over-reaching,
complicated, interconnectedness of the financial spectrum. What are your
thoughts on the federal bailout? Isn`t that just a case of lenders
discovering that they had so many losses they couldn`t cover their own
debts so they turned to the tax payers to cover them for them? How does
that differ from an individual borrower being so indebted that he or she
turns to the banks for relief? That`s why I called my book "The Do-It-
Yourself Bailout."

I`m not a ranting and raving, "get the banks before they get you fanatic,
"(though I do have a few opinions about the private interests of the
Federal Reserve). I am, however, a consumer advocate that feels that if
large businesses, corporations and banks have the legally protected right
to pursue their own self-interests within the scope of law, then
individuals should be afforded the same right without personal or
societal recrimination.

I do not condone a person taking out a new credit card and going on a
shopping spree with no intent of ever paying the money back. That is
theft. But put a family in front of me paying 30% interest on a credit card
that they charged up to put $4.75 a gallon gas in their ten year old
Toyota or make their health care premiums, and ask me whether I believe
they should drive themselves toward bankruptcy to repay that card and
all its interest over years or call the bank and ask to reach a negotiated
settlement which the bank has the free choice to accept or decline, then I
will counsel them to make that call.

Yes, perhaps banks would choose to live in a world where every borrower
had the unerring ability to pay back all debts in full, but we don`t live in
that world, we know it and they know it.   And, as Craig might argue,
banks know that their own practices create the world of over-indebted
individuals who need to settle. They want to over extend debt, the fact
that they make borrowing so easy proves that. They send credit card
applications to people who just got out of bankruptcy. They allow people
who make $30K, $40K, $50K a year to have combined credit lines of
$100K, $200K, and not by mistake, they all know exactly how many cards
an individual has taken out. They set up tables on college campuses
(show me an 18-year-old who only charges what he/she can pay off at
the end of the month).

Banks know that people will charge more than they can afford to pay,
they want us to so that they can keep collecting interest. And I`m not
saying they are wrong to do it. It`s a business model, it works for them,
go for it. What am I saying is that if they are going to create that
business model, they must accept the flip side of it, that there will be
borrowers who cannot possibly ever pay back all they have encouraged
them to borrow.

Not only do large banks know that they are creating borrowers who
cannot repay, they calculate it into their financial models. Just as
insurance companies weigh their premiums against their payouts, banks
weigh the interest they collect against the debt they have to write off. It`s
a sum game like any other business, income vs. expenses. It happens on
the level of the individual. It happens on the level of business (nearly
every business in the world runs on some kind of debt, line of credit, etc.
and every time you hear about a business filing bankruptcy, from Circuit
City to Bear Steans, it means they are writing off "bad debt."). And it
happens on a global level. The World Bank and International Monetary
Fund (which are both banks, owned by other banks), loan money to
countries and we`ve all heard numerous times about this country or that
country "re-negotiating" their debt, having millions forgiven just as a new
loan comes through.

The process of lend-negotiate-relend is a common banking business
model that banks anticipate, expect, and on some level profit from. After
all, if there wasn`t some self-interest for them in negotiating settlements,
why would they? They could easily turn to me or any other borrower and
say "no, we won`t settle for less than you borrowed, pay everything or go
bankrupt." But they don`t do that in a wholesale way. Why not? Because
they know they can`t bankrupt all those people. Then who would be left
to borrow?

I had one bank settle with me and on the same phone call say, "We`re
looking forward to loaning you money again." They want customers.
Frankly, though banks would have us believe otherwise in our
emotionally-tied vision of debt, I believe they see a negotiated settlement
as no different than a retailer sees a return. It`s a fact of their business.
Craig may say I`m oversimplifying, and James, I welcome your counter-
opinion.

The bottom line is that in a true free-market economy we would have a lot less borrowers defaulting on loans. I think we also have to make a distinction between secured and unsecured loans. A credit card is unsecured. A home loan is secured.

I do support certain forms of regulation, but with very tight and formal documentation. I don`t support regulatory committees with absolute power to issue whatever stupid regulations they feel like issuing.

One of the problems is that an ordinary and for the most part free market economy wouldn`t have the massive over supply of unsecured credit. Those companies that issue credit cards at the drop of the hat should go out of business. It`s a bad business decision.

But likewise, consumers have no right to accumulate more and more credit, way beyond their current or projected means to pay off that debt.

Back in the old days, a credit check would show that a person already had debt up to some percentage of their income. But I think if those credit checks better showed the card "limits"---available credit---then likely retailers wouldn`t have been so quick to issue a new card.

Citizens are doing exactly the same thing the government is doing. The only difference is that we the people can`t print money.

The government, on the other hand, can rob anyone they choose to rob. Citizens would be thrown in jail for that. Likewise, the Social Security system---a huge theft structure---is a Ponzi scheme. The government can do it, citizens go to jail.

Additionally, when you look at a number of other major government organizations (e.g., HUD, Fannie Mae, Freddie Mac, Medicare, Medicaid, Federal Reserve, to name a few), they too operate similarly to organized crime structures.

Then add into the mix that the so-called War on Drugs and the overall drug industry is a major part of the overall economy.

The common citizen would be moral, honorable, and ethical given a reasonable career path, decent job, merit pay, and minimum taxation. With none of that happening, and politicians advocating "everyone for themselves," why should only that common citizen be singled out as acting in an immoral fashion?

wow.  Lots to respond to and not enough time.  Yes, i think intent is relevant in determining whether people [or their actions] are good or bad.  I`m also not an apologist for the banks or politicians who play fast and loose with the rules - which is probably most or all of them.

 

I do think it`s just a little too simplistic to talk about how not paying debts "saves" money - since often times that "saved" money has to come from somebody else.  For every can of soup that gets stolen, saving the thief the cost of the can of soup, somebody else who buys soup is paying just a little bit more for that money the thief "saved" himself.  We can curse the grocer for charging too much or the soup maker for charging too much or the can maker for charging too much - any that`s fine.  It does not exonerate the guy who stole the can of soup.

-------------------------

James Lindon, Ph.D. Patent Attorney
Lindon & Lindon, LLC
Cleveland, Ohio
Patents, Trademarks, Copyrights, Pharmacy Law, Litigation
[this is not legal advice - provided for discussion only]
Intellectual Property for the Individual and Small Business: Identify, Protect, Enforce, Defend.
"Fools rush in where angels fear to tread."
http://www.LindonLaw.com

Good point that a value (a real value) is like matter---it doesn`t disappear, it only changes form or possession. The question, then, is whether the unsecured debt under discussion is a value, was a value, or continues to be a value.

Given the bailout package, and referenced by Kenny, the actual debt retains its value to the issuing bank. But in a free market, it doesn`t.

I`ll argue that it`s too simplistic to put unsecured credit that`s been jeopardized by government interference with the free markets into the same bracket as a can of soup. :-D

The thief who steals a can of soup isn`t the same as the mom who charges a can of soup because she`s had no income for two months.

Negotiating credit card payments also has to account for interest rates on those cards, and penalties imposed by the lenders. It places the vale of the debt to the bank in a similar category as the value of a job and survival is for the borrower.

I`ll agree, though, that "saving money" isn`t a morally viable argument. It isn`t saving money, it`s survival. So another title for the article could be "How to Survive by Renegotiating Credit Card Debt."

"How to Survive by not paying your debts like you promised [hey, it`s ok - banks do it]."

-------------------------

James Lindon, Ph.D. Patent Attorney
Lindon & Lindon, LLC
Cleveland, Ohio
Patents, Trademarks, Copyrights, Pharmacy Law, Litigation
[this is not legal advice - provided for discussion only]
Intellectual Property for the Individual and Small Business: Identify, Protect, Enforce, Defend.
"Fools rush in where angels fear to tread."
http://www.LindonLaw.com