If you owe more on a credit card than you can afford to pay, you should try to work out a payment plan with the card company. You agree to pay a lower amount in a settlement, and the company agrees to accept that amount. You avoid the hassle and expense of going to court while also protecting your credit rating. To avoid misunderstandings, you may want to conduct the negotiations in writing. By putting the final agreement in writing, both parties are protected.
Part 1 Writing a Letter to Offer a Settlement
1. Determine how much you are willing to pay. Before attempting to settle your credit card debt, you must first determine what you can afford. Examine all of your outstanding debts and compare them to your regular income and any other available funds.
You can make this decision with the help of your credit report. Many people are concerned with their credit score, but your credit report is much more than a number. It will show you a list of all outstanding debts, open accounts, and ongoing collection efforts against you. All of these factors influence your ability to settle a specific account.
For more information, see Get Your Credit Report for Free.
You may wish to obtain a copy of your credit reports from the three major U.S. reporting bureaus, TransUnion, Equifax, and Experian, if necessary. Their websites provide information on how to obtain copies of your reports.
2. Make a reasonable counter-offer. If your offer is too small, the company is unlikely to accept it; however, if your offer is too large, you risk not being able to make the payments. Choose a number in the middle that you think you can justify.
For older debts, make a lower offer. The company is likely to believe that older debts are less collectible in general. As a result, they are more likely to accept a lower offer. A reasonable offer could be in the range of 15% to 25% of the debt.
3. Recognize that a settlement may have a negative impact on your credit score. Anything other than full, on-time payment will lower your credit score. A settlement, on the other hand, is preferable to waiting until the account goes to collection because it demonstrates that you accepted responsibility and addressed the issue directly.
4. Send the letter to the appropriate office. Determine which credit card company’s office handles settlement offers. You can usually find out by researching the company online or calling the customer service number on the back of the card. When you reach someone at the company, tell them you’d like to make an offer to settle your debt and ask for the address to send a letter to.
Inquire whether you should address your letter to a specific person. Most of the time, you will simply write to the collections office (or something similar), but some businesses may refer you to a specific individual.
5. Clearly identify the account under discussion. You should include the account number at the top of your letter, just below the address. It is critical to specify which account you are attempting to settle, especially if you have multiple accounts with the institution.
6. Describe your situation. Avoid getting emotional about your problems, but you should explain why you need to settle your debt. If you can point to a specific cause, such as an accident, divorce, or something else that is unlikely to happen again, it will help your case. If you simply overspent, the company will be less likely to settle because there is no guarantee that your spending habits will change in the future.
For example, your letter could begin, “Due to a recent automobile accident and the medical expenses I have incurred, I am unable to make all of my outstanding credit card payments.” I’m writing in the hope of reaching an agreement with you for a reasonable amount.”
A letter of explanation for a settlement like this may also help you with future lenders. Keep a copy of the letter and be ready to distribute it. When potential lenders see a settlement on your credit history, they will be concerned, but your explanation will provide context.
7. Make your offer as clear as possible. Give a detailed breakdown of the amount you’re willing to pay. You should also specify whether you’re proposing a one-time payment or a monthly payment plan. Either option is acceptable, but you must clearly outline your proposal.
This type of offer might say, “I am able to make an immediate payment of $4,000 in full settlement of my outstanding credit card debt.” Make sure to use the phrase “in full settlement” so that it is clear that this is a one-time payment and not part of a payment plan.
If you want to start a payment plan, you could say something like, “I’d like to start a payment plan in which I would pay you $1,000 on the first of each month for the next six months.” This $6,000 would be sufficient to pay off all of my outstanding credit card debt.”
8. Set a deadline for a response. At the end of your letter, request a response from the company by a specific date. Please allow at least two weeks for a response. However, if you do not receive a response by that date, you should not assume that your offer has been rejected. You should contact the company, referring to your letter, and attempt to continue the negotiations.
Part 2 Continuing an Ongoing Negotiation
1. When possible, communicate with a single person. Whether you initiated the negotiation over the phone or in writing, you should learn the name of the person in charge of your account. Any subsequent correspondence should be addressed to this person by name.
2. Examine your previous negotiations. You should make references to previous letters or conversations in any letters you write. Give a summary of the negotiations so far. This will aid in the preservation of context for your current correspondence.
For example, your opening paragraph could be something like, “I am writing to follow up on our phone conversation on July 16, 2016.” I offered to settle my credit card account with a single $2,000 payment, but you countered by saying your company would accept $8,000.”
3. If possible, make a follow-up offer. Any negotiation involves two parties giving and taking. If you can reasonably increase your offer, include the most recent offer in your letter. If, on the other hand, you’ve reached a point where you honestly can’t go any further, you should admit it. The company will then be forced to accept your offer or take legal action.
This most recent letter could say something like, “I appreciate your request for a payment of $8,000.” However, I am unable to fulfil your request. In full settlement of my outstanding debt, I am able to offer a final payment of $3,500.”
4. Negotiate the most favourable settlement reporting. Your credit score is likely to suffer if you pay less than the full amount due. You can, however, try to mitigate the damage by changing the way the company reports the settlement. Request that they mark your account as “paid.” This is the best option for you. If they refuse, request that your account be classified as “settled.” The worst outcome for you would be a report of “charged off” or “transferred,” indicating that you did not pay the full amount. In that case, you should expect to hear from a collection agency.
Recognize that you have very little control over how the company reports your account to a credit-reporting agency. Nonetheless, it is worth discussing. Request the most favourable treatment possible.
5. Maintain a copy of all correspondence. Keep a record of all letters you send and receive. You may need to refer to these in the future as you evaluate additional offers.
Part 3 Confirming a Completed Settlement Negotiation
1. To conclude your negotiations, send a final letter. You and the credit card company are likely to reach an agreement at some point. When this happens, you must confirm the agreement in writing.
2. Recite the entire agreement verbatim. You must ensure that the terms of the agreement are stated accurately and completely in your final settlement letter. Take care not to omit any details. Include every one of the following:
The payment deadline is determined by the amount of your agreement. Even if the agreement calls for “immediate” payment and you include a check with the letter, you must state this.
If you are creating a payment plan, you should include periodic payment dates.
the phrase “complete and final settlement” This legally binds the company to this amount and prevents any future collection efforts for additional amounts.
a description of how the company intends to report the debt to credit reporting agencies It matters whether a debt is reported as “paid,” “settled,” or “paid late.” Try to work out a deal for “paid” reporting.
3. Make room for both signatures. You should sign the letter and leave a space at the bottom for a company representative to sign, indicating the company’s agreement.
Send two copies of the letter with your original signature to the company. Request that the account representative sign one of the letters and return it to you in the body of your letter.
Include the words “Agreement accepted” above the signature space. After that, include a line for the company representative to sign and insert the date.
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