A friend of mine asked me how to settle old credit card debt. I mentioned the process to him a while back, and he is looking to settle some debt.
After breaking down the process for him, I thought it’d be great to share with you as well. I mean, credit cards are the most popular form of debt and the average person has about $15,000 in credit card debt on 10 or more credit cards. It’s likely a few in the community will need to know how to do this.
Before You Begin
Before you even consider settling old debts, you need to know a few things:
- Know the original amount. Before you can settle, you need to know how much you owed originally. Collection agencies add bogus fees and interest that in many states are illegal. Knowing how much you originally owed and allowing for normal interest gives you a place of power to negotiate from.
- The debt has to be old. I’m talking really old. If you miss a single payment, the debt collector isn’t going to even hear a settlement. It needs to be 90 to 180 days old before a collector will consider a settlement.
- Deals vary wildly. There’s no method to debt settlement. The longer the debt has been outstanding, the more likely the creditor is to take a deal. A 5-year-old debt might settle for 30% of the original balance or it might not settle at all. However, in most cases, a 6 month or year-old debt will probably settle for 60–80% of the original. You just have to be persistent.
- Have cash. You need to have the total amount of the settlement in cash. If you say you’ll settle with them in three months when you’ve got the cash, they’ll laugh in your face! They don’t want promises, they want money. Don’t offer a settlement if you can’t back it up with cash.
If the debt isn’t old, you don’t have cash, or you aren’t realistic about the kind of settlements you can get, you’ll only frustrate yourself.
How To Settle
Now that you know how much you should owe, have cash in the bank and you haven’t paid on the debt in 6 months, you’re ready to negotiate.
When they call, let them know you’re willing to settle the entire balance for the amount you’ve saved up. Make sure they understand that this is cash money ready to put in their pocket if they’ll accept it.
Here comes the fun part.
They’re not going to accept it. They are going to yell at you, tell you their job is in jeopardy if they accept that low amount, or something similar to convince you to pay more than you have. Don’t fall for it. They’re a minimum wage worker in a cubicle 1,000 miles away. They’re paid to manipulate you emotionally so that you’ll pay them more. Tell them this is all you can do and it is all you are going to do.
Then hang up the phone and wait for the next phone call.
If you’re normal, this process can take weeks or even months before they finally accept the offer. In the mean time, they will yell at you, threaten to sue you, call you names, and laugh in your face. If anything like that happens, hang up on them. If you’re lucky enough to be sued, head on over to the court house and settle with the lawyer, they usually take the deal.
When the collector finally agrees to take the deal, you still have some negotiating left to do:
- Get the agreement in writing. If they won’t send you a letter that says they accept your settlement as “payment in full” (it needs that language) then don’t send them a single penny. You see, collectors lie. If they agree to a settlement and you pay them without getting it in writing, they’ll keep collecting from you. When you protest they’ll tell you that person lied, was fired, or that they don’t know what you’re talking about. Get it in writing or it didn’t happen.
- Only pay with a money order. They will want access to your checking account, but if you give it to them, they’ll clean you out and keep collecting from that account until you either change accounts or pay the balance and their ridiculous fees. Using a money order keeps you safe and keeps them honest.
They won’t like the idea of sending you a letter or accepting a money order, so you’ll probably have to have several conversations where you make that offer before they finally accept it.
Once you’ve got the letter, mail the money order in a certified letter with return receipt requested. If you can’t prove they’ve got the check, they’ll say they never got it even if it was cashed.
Staple the money order stub and the mail receipt to the letter that says they accept your payment as “payment in full” and file it away somewhere safe. If you don’t keep the letter and the proof of payment they’ll come after you again in a few years (sometimes 10 or 20) and say they never got payment. Faxing them a copy of the letter, the returned mail receipt, and the money order will shut up and lying collectors.
Freedom Comes At A Price
Negotiating can be tiring, especially when dealing with collectors. But if you go through the process you’ll end up without the weight of debt hanging over your shoulders.
Have you ever settled old debt? Do you know someone who could use this information?