You must know who you are dealing with. Are you dealing with the original bank that issued the credit card? Or did the bank merge and send your account to a new bank? Perhaps the bank has referred your account to a professional "Collector." Collectors usually will take less than the bank itself would have taken, but they are still collecting for the bank.
The best situation is when your debt has been sold or "assigned" to an entirely new debt purchaser, like Asset Acceptance or LVNV. These buyers of debt pay as little as 1% to purchase your debt. They rarely pay more than 5%. So they have more room to deal. But they also sue pretty fast.
Set A Settlement Goal
Choose a sensible goal and stick to that goal. Try to find out or estimate what the actual debt was when this particular collector acquired it. A sensible goal in credit card negotiation might be to settle for less than 50% on all of your debts original amounts. Maybe you will be bold and try for 30%. Remember, it's a goal, not a guarantee.
Get The Creditor To Make The First Offer
When you call the creditor(use the telephone number for "disputes") do NOT tell the creditor that you want a deal. Ask if they can hold off taking payments for a month or two. Tell them that you are in deep financial trouble and are even considering consulting a bankruptcy attorney. Remember, they can see all of your assets and liabilities up on their computer screen. So stick to the truth, always. And politeness counts. Even if they are not always polite.
The creditor should then pop out some offer of settlement. If they don't, ask, "What would it take to settle this account instead of a bankruptcy?" Whatever number they give, tell them that it is completely out of the question. But keep a careful record of who you spoke to and what they offered. Then thank them and hang up politely.
Don't pay attention to "today and today only" offers. That's a dishonest method of negotiation. If the horse is worth $10.00 today, he'll be worth $10.00 tomorrow. Or get another horse.
Now Make Them An Offer
After the creditor has made an initial offer, you should wait a short time and make a counter offer. When you call, tell them that the last person you spoke to made an offer that was not possible to accept and repeat the offer. They should see notes of the last conversation on their screen.
Now, make a very low offer that you do not really expect to be accepted. If true, you should tell them that you are borrowing the money to settle or go bankrupt from relatives. I like to offer about 15% (never an even amount15%).
You will often be turned down on such an offer. That's OK. Be prepared to be laughed at. But, be sure to ask, "What do you think is fair, considering my financial position? Make careful notes of the conversation again. Close by telling them that they are demanding far more than you have the ability to pay.
Then Close The Deal
You are now ready to close the deal. You should have a pretty good idea of where they will go on this deal from your previous conversations. They should have the idea that you are broke, borrowing money to settle and might be ready to file either a Chapter 7 or Chapter 13 bankruptcy to save yourself from suit or garnishment or liens on your home.
So now, make an offer that is closer to your final goal. I like to try 20% or 30%, depending on what I know about the creditor and how our previous conversations have gone. Listen to what the creditor says in response to your offer. Ask them politely, "How does the bank think it's going to get more than my offer out of this account?" Then suggest that you might be able to scrape up a little more money, if the bank would be reasonable and come closer to your offer. See what response that gets.
Finally, remember to dangle the cash. Offer to give them a check over the phone or whatever way they want it (Not Western Union)
What To Do When You Get A Form 1099 And Other Final Thoughts
When you make a deal for a reduced debt, you will often be sent a Form 1099 at the end of the year. This form alleges that you had "income" from negotiating the lowered debt. If you made the deal while technically "insolvent," you need need only attach the 1099 and a Form 982 to your tax return and there will be no income attributed to you.
Also, some people worry about their credit and try to get special entries on their credit as part of a deal. I rarely do this. The payment record is usually already so bad that an entry settling the debt only improves things. I wouldn't pay a dime to have them put in a entry that is supposed to improve my credit. Remember, you don't want credit. That was how you got here.
Final Thoughts On Deal Making
Remember, you don't want a fast deal. You want want an affordable deal. Take your time. Do not be afraid to say no and then call back later. You probably can't hurt yourself by trying to negotiate a credit card debt, unless you fail to defend a lawsuit that is brought on the account. So feel free to attempt to negotiate on your own and get the best deal you can. Good luck.
Go see an attorney if you see that the debt is hopeless or if you get sued.
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