If you are planning to enter into a credit card debt settlement with your creditor to avoid bankruptcy or for any other reason, take the initiative and contact them.
The recent economic recession has highlighted the problems many Americans have been facing for a long time with credit card debt. Card companies have been using misleading terms like ‘fixed rate’ and ‘prime rate’ to charge exorbitant interest rates on unsuspecting consumers. They have also been arbitrarily changing the terms of contract and levying fees and penalties. If you are one of those people who are struggling to come to terms with your debts, and are considering credit card debt settlement, pick up the phone and call your creditor. Creditors will take it as a positive sign if you take the initiative to contact them regarding debt settlement or debt consolidation.
However, you should know about the pros and cons before you decide to settle your debts. If the company agrees you will end up paying lower monthly installments and possibly lowered interest rates. The downside of debt settlement however is that you will have to keep paying installments for a longer period of time and might have to pay more than what you initially owed.
Credit Card Debt Settlement Act
Over 90 percent of the revolving consumer debt is credit card debt, the administration making a note of this enacted two relief acts to help the population deal with their debts. One part of the credit card debt help from government comes in the form of reforms in the way credit card companies do business.
The Credit Card Reform Act of 2009 put curbs on the interest rates charged by the card companies. The act also prohibits creditors from arbitrarily changing the terms of contract without notifying the customer at least 45 days in advance. It also requires creditors to clearly define the terms ‘fixed rate’ and ‘prime rate’ and prohibits credit card companies from using these terms in a misleading way
All these measures will help consumers deal with their existing debts, this act also put curbs on the double cycle billing practices used by card companies. Card holders are also given the right to set their credit limits under the new act. These reforms will also help customers with credit card debt settlement.
If you have decided to settle your credit card debt, you can directly call your creditors and negotiate a settlement or hire an agency which provides consumer credit counseling services. If you decide to go on your own, you should know that card companies will only settle on unsecured debt. If you plan to hire an agency, choose one which is a part of the National Foundation for Credit Counseling (NFCC).
Try hiring an agency which charges after the settlement is made. Another tip is to have the funds ready for the settlement before entering any negotiations. Your debt settlement process should begin by taking your personal financial inventory.
Start your debt negotiations by offering to pay 25-30 % of your overall debt, in most cases the company will settle for 50-60 % of your debt. When negotiating, have your income and expense statements ready and mention the mitigating circumstances that led you to pick the settlement option. Be professional when negotiating, do not lose your temper and keep the conversation restricted to your finances, do not get personal.
When getting into a credit card debt settlement agreement, make sure you take in writing the terms of settlement. Try and settle with the card company on your own, this way you will also save the fees charged by credit counseling services.