Credit card debt, an avoidable pain, interferes with your sleep and makes your life miserable. There are several proven methods to conquer this anguish.
You can stop using the credit card first
Using the credit card will only worsen your problem if you already can't pay for your bills.
Know the limit
Before you could settle for the card, you need to know if you are already near the limit of your credit card.
Call your credit card provider
A great number of collection agencies can haggle with the credit card user, especially when it involves large sums of money.
Haggle to settle the debt
You may want to settle the debt with the credit card company or the collecting agency
Confirm that the debt is yours
Request a Debt Validation/Verification Letter to verify that there’s no accounting error. You can make an oral request or send a request letter via fax/email to your creditor.
Find out the precise status of your debt
Find out whether your debt lies within the purview of the “Statute of Limitations” period specified in your nation or state. If your debt is past this period, it’s a Zombie Debt for which you’re not legally accountable. Nevertheless, it belongs to a debt collection agency.
Understand the true meaning of the Statute of Limitations
The last time your debt was “Live” is a critical aspect that the statute of limitations considers. Hence, it’s prudent for you to NOT make any commitments to pay your debt before verifying whether your debt is a “Zombie Debt.” You’ll accidentally reactivate the Statute of Limitations if you agree to make a payment.
Understand the implications of a “Zombie Debt”
If you can incontrovertibly prove that your debt is beyond the ambit of statute of limitations, your creditor cannot collect it from you ? at least, legally. Technically, you still owe money to your creditor. Hence, obtaining the Debt Validation/Verification letter from your creditor is critical.
Maintain the balance of your debt at the lowest level
Your debt collector would’ve bought your credit card debt from the original enterprise you owe at a fraction of its cost. For this reason, debt collectors settle for an amount that’s much lesser than the amount you actually owe. Hence, maintaining the balance at the lowest level possible benefits you greatly. You can negotiate aggressively to settle your credit card debt.
Negotiate the settlement of your debt wisely
Start the negotiations with your debt collector by offering to pay around 30 percent of your credit card debt amount. Increase this amount slightly if necessary and settle for a mutually agreeable amount. Make an offer that’s financially attractive. For instance, if you’re seeking a 70 percent discount on your credit card debt, you must make a lump sum payment. Demanding a steep discount, as well as, an installment scheme, will just not work. It’s an unwise move.
Some banks refuse to settle a credit card debt
This happens frequently for an assortment of reasons. If your credit card debt is not past the 90-day window period, banks refuse to entertain a settlement. Understand that a bank’s customer service representatives aren’t part of its internal recovery department.
The response of your bank’s first-stage delinquency staff
Understand the negative response of your bank’s first stage delinquency staff during the initial 30 to 90 days. They’ve been specifically trained to tell customers that they don’t settle credit card debts. You cannot connect with a recovery professional until your debt is over 90 days past due. Nevertheless, the bank’s first tier representatives offer limited payment plans to get your debt repayment back on track.
Understand the advantages of falling behind by over 90 days
Even though your bank’s staff keeps insisting that they don’t settle during the initial 90 days, they’ll begin singing a different tune after this 90-day window period. During the 4th to the 6th month of the delinquency of your credit card debt, your bank will be willing to settle.
Here, it’s prudent to wait for this “golden” period. Numerous credit card debt settlements take place during this period. They’re arranged and worked out by the banks internally. There are slight variations here because some banks telegraph their credit card members faster than others.
Banks follow a protocol for credit card debt
Federal regulators have set rigid restrictions on banks for dealing with overdue credit card debt. Hence, the window period to resolve and settle your credit card debt with your primary lender expires within six months. Strive to resolve your credit card debt within this 6-month timeline.
Banks do refuse to settle during this 6-month timeline
There have been countless instances when banks have refused to settle credit card debts during the initial 6 months of nonpayment. New accounts and accounts that are suddenly maxed out with subsequent stoppage of payments are viewed suspiciously by banks. Changing internal creditor trends also result in banks refusing to settle. Banks refuse to settle for several other reasons, too.
The optimal time frame for settling your credit card debt
Plan to settle the debt with your credit card issuer during the golden 90 to 180-day period. For several reasons, this time frame works in your favor. If you cannot settle your debt before 180 days, you’ll have to deal with a debt collector, collection lawyer, or collection agency, later on.
The “settled” remark on your credit report is detrimental
At the time of your settlement, put in a request for your agreement to be reported as “paid as agreed upon” and NOT as “settled.” A “Settled” remark can harm your credit report immensely. Additionally, enquire whether the trade lines related to the debt can be erased completely.
Trade lines outline the history of the account on your credit report. Since the life of trade lines extends to 7 years, it’s beneficial to erase negative ones early. Your creditor may be unwilling to relent. Notwithstanding, it’s worthwhile to request politely, especially if you intend to pay a lump sum.
Understand your tax liability
“Excused Debt” is akin to income. The amount excused by your creditor attracts taxes. Your negotiation skills have yielded earnings for which you need to pay taxes. You can avoid this tax by shaving off an amount for which the government offers an exemption.
Before making a payment, document your agreement terms
Get the terms of your payment agreement in writing from your creditor. After proper documentation of the terms of payment, you can settle your credit card debt. If the creditor draws back from the agreed terms, you can use the written agreement as proof. More importantly, you can use this document to rectify errors whenever your creditor reports you inaccurately.
Benefits of settling your credit card debt
A reduction in your debt leads to an automatic rise in your credit score. Paying off debt you’ve successfully negotiated down results in your credit score jumping even higher. The amount of your debt in comparison to your total income reckons for 35 percent of your credit score.
Proof of the status of the credit card debt
Credit card debts don’t disappear merely because they have crossed a time threshold. If the credit card debtor appears in court to affirm his or her rights, the debt collector cannot always sue to collect the debt. Unfortunately, many consumers choose to ignore court notices concerning old debts. Eventually, they lose even cases that would’ve been dismissed because of the expiry of the statute of limitations.
In many nations, the responsibility of producing proof of time-barred status of a credit card debt lies with the consumer.
Beware of Re-aging your debt
A consumer making a payment towards an old debt ? however small the amount ? “Re-ages” the debt. The consumer acknowledges the old debt and extends the time limit on possible debt collection lawsuits. New activity on an old debt “re-ages” it. Hence, consumer advocates advise debtors to desist from acknowledging old debts and inadvertently resetting the statute of limitations clock.