Debt negotiation is a concept that is synonymous to debt settlement. In this process, the creditor and debtor negotiate a reduced payment with each other. Many people may argue about the authenticity of such a procedure. Well, if you look at the broad picture, you will notice that both parties are at an advantageous position. The creditor does not have a fear of losing a lot of money, as there is a strong chance of the debtor filing for bankruptcy. Credit card companies agree to negotiate immediately as there is higher risk of loss. This is because when a person files for Chapter 7 bankruptcy, credit card bills are last and least repaid debts.
How to Negotiate Credit Card Debt
A majority of people prefer to go to debt negotiation companies or simply avail debt settlement services in order to get rid of all possible credit card debt. The singular drawback of such a situation is that there are quite a few charges that are levied by the company. Therefore, the best way is to negotiate credit card debt yourself. It would not cost you anything and would be precise, after all you know your own debts better than any other people. Here’s what you can do.
- Analyze Your Status: The first thing that you can do is analyze your financial status. For this purpose, make a personalized balance sheet and segregate all your assets and liabilities. Then make a statement that shows your monthly income and how much you have to pay off every month. Theoretically, the amounts that are to be paid off need to be lesser than the income. The next step is to concentrate upon the credit card debts and their nature. These debts are basically divided into three parts, namely, the monthly bill, service charge, and late payment fees. Out of the three, the late payment fees go on adding up with each successive month, if they are not paid in time. Now take a paper and pen and add up all the monthly expenditures and ordinary service charges. This is your monthly expenditure that has to be paid with the help of normal monthly bills. There is, still, the late payment charge you need to pay.
- Get together Your Resources: This step is crucial one as you will need to pool in all your financial resources to repay the bills. The best way to negotiate credit card debt, is to prepare a small statement that consists of all your possible disposable assets. In such a scenario, you will need to collect together all possible statements from your banks and other financial institutes. With the help of such data you will be able to prove to the credit card company that you are indeed suffering from a financial hardship. After you have compiled this data, have a look at all the statements. While doing this, take a look at all your disposable assets. You may also consider selling an asset or two in the process or availing a debt consolidation facility or getting a home equity line of credit or a home equity loan to help you out of the mess you are in.
- Contacting the Company: The last step is quite an important one, as it involves contacting the credit card company’s negotiation team. In such a scenario, the credit card company’s representatives will make quite a few inquiries about your financial hardships. Next, you will be called in for a negotiation. Be armed with a good repayment plan and all possible data that will validate your plan and will enable you to negotiate credit card debt. Letters such as a term modification letter or a loan modification hardship letter will also work wonders.
- Making the Negotiated Payments: In some cases, representatives may sketch out a payment plan for you or would even make the credit card, a secured credit card. The amount of settlement is often put in the terms of percentages, such as 70% of the total debt to be paid in an installment of 10% of negotiated debt per month. Making the upcoming payments and bills on time is an absolute necessity, otherwise your credit ratings drastically disintegrate.
As your entire credit report will be handed over to credit reporting agencies, debt settlement, or debt negotiation affects your credit score and rating.