People in Broward County are facing more financial insecurity today than in many years past and knowing how to negotiate your credit card debt is becoming more and more important. Debt settlement companies may offer to do this for you, but they charge a fee that is unaffordable for many that are already facing financial difficulty. Also, just by knowing some simple tips, it is quite easy to negotiate your credit card debt on your own.
The below tips can help you negotiate a settlement that is more manageable for you, and that will help you get out of debt faster.
Know Why Creditors are Willing to Negotiate
Before you have your first conversation with your creditor, it is important to know what motivates them to negotiate with you. Too many borrowers think the creditor is working against them, and that they will not be open to settling the debt. Fortunately, this is not true.
Credit card companies are often owned by banks, and the first priority for any company is to generate profit for the parent company and the shareholders. Once it becomes evident that you will not be able to pay your credit card balance, the priority of the company shifts slightly. Instead of focusing on recovering the entire debt, their concern is to recover as much as they can from you. The company will also become concerned with the prospect of you filing bankruptcy, which would result in them not being able to recover any of the debt.
If the company does not recover any debt from you, they must write it off, which results in the value of stocks decreasing, reduced dividend payments to shareholders, and even executives receiving fewer bonuses. To avoid these ramifications, the creditor will be willing to negotiate with you to recover at least a portion of the debt.
Understand Your Negotiation Options
Before negotiating a settlement with a creditor, it is important to know the options you have for an agreement.
When creditors are willing to negotiate with borrowers, they will likely want to enter into one of the below arrangements:
- Lump sum agreements: Just as the name implies, this type of agreement requires you to make a one-time lump sum payment for an amount that is lower than the total debt. This type of agreement only works, of course, if you can afford to pay the lump sum. Depleting your entire savings is generally not recommended to pay off debt, but a lump sum agreement may work if you just received an inheritance, a large tax refund, or a bonus at work.
- Workout agreement: A creditor may make many moves in a workout agreement, including lowering your interest rate, waiving or reducing the minimum monthly payment, or removing late fees. A workout agreement will lower the total amount of debt you owe, allowing you to pay it off in a shorter period of time.
- Hardship agreement: If you are having trouble paying your credit card bill due to a temporary situation, such as a job loss or illness, you may be eligible for a hardship agreement. This can include lowering interest rates and minimum monthly payments, but may also involve your credit card payments being suspended for a certain period of time.
Document Everything
Your negotiations with the credit card company will start when you first phone them, but it will not end there. You will likely have to speak to many different people on multiple occasions. Before making that first phone call, ensure you know the exact amount you owe, the amount of interest you are paying, and any other important details pertaining to your account.
Start the conversation by stating that you cannot afford to repay the total amount of the debt, but you want to pay something so the creditor recovers at least a portion of the debt. If you are thinking about filing bankruptcy, also mention this to them, as it will motivate them to negotiate a settlement with you.
There is a chance that the conversation will not go the way you had hoped, but it is important to note give up. As you speak to different people at the company, document everything that was said, as well as who you spoke to. If you do negotiate a deal, make sure the terms of the agreement are put into writing in the event that a dispute arises in the future.
Know the Potential Disadvantages
While negotiating a settlement for your credit card debt can help you start off with a clean slate, there are some disadvantages you should be aware of. The first is that negotiating a settlement can have a negative impact on your credit score. Even before a settlement is reached, the company may close or restrict your account and prohibit you from using credit in the future. You may also not have as much access to capital from other borrowing sources because you will be viewed as a bigger risk.
If you are given access to credit, you will also likely have to pay a much higher interest rate on the debt. This is also because you will be viewed as a higher risk. Even expenses such as your auto insurance premiums may increase.
Lastly, if the creditor forgives more than $600 in debt, the creditor will issue a Form 1099-C, Cancellation of Debt for personal tax return. According to the IRS, forgiven debt is considered taxable income. You should not take any steps to avoid filling out the 1099-C form and attaching it to your taxes. The creditor will contact the IRS and if you try to avoid paying taxes, you will face very serious consequences.
Our Debt Defense Lawyers in Broward County Can Negotiate On Your Behalf
It is possible to negotiate a debt settlement agreement on your own, but the thought is very intimidating to some people. If you are suffering from debt, our Broward County debt defense lawyer at Loan Lawyers can negotiate on your behalf to help you obtain the best agreement possible. Call us today at (954) 523-4357 or contact us online to schedule a free consultation.
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Loan Lawyers is made up of experienced consumer rights attorneys who use every available resource to develop comprehensive debt solution strategies. Our goal is to take on those burdens, resolve those problems, and allow our clients to sleep soundly knowing they are on the path to a better future.
