How to Reach a Settlement Agreement with a Creditor in South Florida

When people fall into financial difficulty, sometimes, working with a debt settlement company seems like a good idea. These companies negotiate with your creditors on your behalf and come to an agreement about the amount of debt you will repay.

A settlement is typically less than the original amount of the debt and sometimes, the difference is considerable. Debt settlement companies may seem like the only answer, but they are not. In fact, armed with just a few tips and tricks, you can negotiate a settlement on your own without the fee those companies will charge you.

Why Are Credit Card Companies Willing to Negotiate?

While some people think they have to use a debt settlement company to negotiate with creditors, others simply think there is no point at all. Fortunately, your credit card company may be just as willing to negotiate as you are. Credit card companies have many different priorities, but the first is always to make as much profit as possible.

The priority of the banks and credit card companies remains making money even when it becomes clear that a person will not be able to repay all of their debt. They know there is a chance they may still be able to recover at least a portion of the debt and so, they become willing to negotiate with you for a smaller amount.

The banks and creditors also know that if you cannot repay the debt you owe them, there is a chance you may file for bankruptcy. If that is the case, they stand to lose everything and recover nothing. While creditors will still try to recover as much as possible from you, they will remain willing to negotiate with you in many situations.

Know the Different Types of Agreements

As a consumer, you have many options when coming to a settlement agreement. Creditors will typically use one of three arrangements when agreeing to a settlement and they are as follows:

• Lump-sum agreement: This option is usually best if you know that you will soon receive an inheritance, a work bonus, or another additional source of income and want to use it to repay your debt. You can offer to make a one-time payment to the creditor and they will forgive the remaining amount.
• Workout agreements: If the credit card company is willing to enter into a workout agreement, they may lower your interest rate, reduce the amount of the minimum payment due monthly, or waive late fees. A workout agreement will reduce the total amount of debt you owe, allowing you to pay it off completely in a shorter amount of time.
• Hardship agreement: If you have just lost your job, experienced a natural disaster, or became sick, you may qualify for a hardship agreement. A hardship agreement may also reduce your monthly minimum payment, fees, and interest rate. In some cases, the creditor may also allow you to suspend payments for a certain period of time and not incur any penalties for doing so. Not all credit card companies offer this, but it is good to know that some do.

Starting Negotiations

Once you understand the options that may be available to you, it is time to contact the credit card company and try to negotiate an agreement. Before picking up the phone, make sure you understand the exact amount you owe, the interest rate you are paying, and any other important details about the debt.

When speaking to the credit card company, inform them that you cannot repay the entire amount of the debt and that you would like to work out a settlement agreement. Emphasize the fact that you would rather give the credit card company something rather than nothing. Additionally, if you are thinking about filing for bankruptcy, tell the credit card company so and explain that you would rather negotiate a settlement instead.

Do not become discouraged if the first person you talk to is not able or not willing to negotiate a settlement agreement. It can take speaking to several different people over a period of days before you reach someone who can negotiate with you. The negotiations after that point will also take some time, so it is important to remain persistent even after the creditor has turned down your first one or two offers.

As you speak to different people at the credit card company, make sure you document who you spoke to, and everything that was said during the conversation. If you are able to reach an agreement with the creditor, always make sure the terms of the deals are in writing. A formal document will help you avoid any disputes about the debt in the future.

Know the Potential Drawbacks

Successfully negotiating a settlement agreement with a creditor can help if you cannot repay the entire debt. However, it also comes with some potential drawbacks and it is important to know what those are.

Depending on how negotiations go, a debt settlement agreement can cause your credit score to drop quite significantly. A company may have already closed your account before you came to an agreement with them, or they may have taken other measures to prevent you from using more credit. This will make you seem like a bigger risk to other creditors, as well. If you are able to find a new source of credit, you will likely have to pay a much higher interest rate to use it.

If the credit card debt forgiven is over $600, it will be treated as taxable income. The creditor will notify the IRS of the total amount forgiven and will give you a Form 1099-C, which you must file along with your taxes. If you do not, you will face serious consequences.

Call a Debt Defense Lawyer in South Florida

Negotiating with a creditor on your own is possible, but you can give yourself a better chance of success if you work with a South Florida debt defense lawyer. At Loan Lawyers, we have the necessary experience to negotiate with creditors and will help you obtain the settlement agreement you need or defend you against legal action. Call us today at 954-807-1361 or fill out our online form to schedule a free consultation.