Past due credit cards cause stress and can harm your credit for years. But some creditors may let you buy out or settle credit card debt for pennies on the dollar. Unfortunately, the further behind you get, the more power you have to negotiate a settlement for a percentage of the balance. A buyout is normally structured as a lump sum payoff. For example, you pay $500 or 50 percent of a $1,000 balance. The creditor can classify your account as "settled for less than agreed" or may delete the account on your credit report.
Contact Your Creditor
Contact the creditor if you can't make your monthly credit card payment. The company may offer programs for those in a tight spot, including forbearance -- suspending your payments for a few months while you get back on your feet. Your account will still accrue interest during the forbearance, but you'll buy yourself some time to catch up. If you're experiencing more than a temporary financial setback and your debt is already six months past due, you'll have to start dealing with a collection company.
Deal With Collectors
After 180 days of nonpayment, the credit card company normally writes off your debt -- removes it from its books and takes a loss -- and a third-party debt collection company collects on the money owed. The collector does this on a contingency basis, meaning the debt collector gets a percentage -- usually around 15 percent of what he collects. But collectors have a limited amount of time -- 60 days to a few months -- to get you to pay. If you don't pay, the debt goes back to the original creditor or another collection company. Given the time deadline, the collection agency might be willing to settle to bring in some money before losing the account.
Negotiate a Buyout
Collectors will work with you if you can start making payments. If your budget has room, make a minimum monthly payment offer, but don't commit to payments you can't swing. Most collectors will resist a settlement at first but will grow more open to negotiate after time has passed. The best time to negotiate is at the end of the month and close to the "best collected by" expiration date, when the debt returns to the original creditor or goes to another collector.
Negotiate for two primary concessions: a reduced balance and a "pay-for-deletion" letter. It never hurts to ask for both. All the collector can do is say no and you're no worse off than when you started. John Ulzheimer, president of consumer education for the SmartCredit website, recommends that you start negotiating at 10 to 15 percent of what you owe and expect to settle around 30 to 50 percent. Get any agreement in writing before you pay. The worst that can happen is that you pay the full balance to get the deletion or you pay a lower settlement and get "settled for less than balance" on your credit report.
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