Financial experts generally urge credit cardholders to pay off their balances in full every month to avoid racking up interest. Many Americans, however, find themselves unable to do so — regardless of how much they’d like to follow that advice if they could.
The fact of the matter is more than four out of 10 U.S. households (41.2 percent) carry some degree of credit card debt. Many Americans find their balances growing, even as they pay the minimum amount due to keep the account current — and many more have experienced one or more accounts becoming delinquent due to missed payments.
If you’ve ever wondered how in the world you’re possibly going to get out from under what seems like a mountain of debt, rest assured you’re not the first, nor will you be the last in that difficult position.
What you may not know is there are ways to resolve debts without paying the “sticker price.” A strategy known as settlement involves negotiating with creditors to get them to accept a lesser sum — rather than the nothing they’d get if you ended up defaulting.
But negotiating with creditors can be tricky, not to mention intimidating. Here are four things to remember before you pick up the phone or sign up for a settlement program.
#1: Start Lower Than the Settlement You Want to Achieve
Working out a workable settlement is not much different than haggling at a market. You’ll want to start lower than the amount you’re actually prepared to pay. They will likely come back with a counteroffer. Then you’ll offer up a counter-counteroffer.
According to NOLO, the final goal is generally to reach an agreement of half the original balance or less. By starting closer to 15 percent, you’ll give yourself more wiggle room than if you named a higher percentage right off the bat.
#2: Be Honest About Your Financial Circumstances
While your creditors don’t need to hear your life story, it is helpful to concisely explain the financial hardships you’re facing. It may also help to mention bankruptcy — as a last resort you’d like to avoid by working together to reach a mutually beneficial settlement.
Avoid exaggerating or lying about your financial situation, especially embellishing your struggle in a way your creditor can refute by looking at your credit report. However, it is helpful to cite the specific financial obstacles you’re facing — like a recent layoff, death in the family or sudden medical emergency.
#3: Consider Seeking Out Settlement Help & Accountability
Some people decide to tackle negotiations on their own. Other people prefer the structure, resources and accountability of a program — as many Freedom Debt Relief reviews will attest.
There are pros and cons to both DIY settlement and enrolling in a program. The former means you’ll avoid having to pay a fee to settle, but you’ll also be on your own in terms of saving and negotiating. The latter will charge a fee for any successful settlements reached, but will grant you access to consultants, a client dashboard and professional negotiators in exchange.
The decision to seek assistance typically depends on your financial situation, your personality and your level of experience with debt.
#4: Start Depositing Funds into a Designated Account ASAP
Your leverage in these negotiations centers around having cash ready to go as soon as an agreement is reached. This means you’ll need to start making regular deposits into a designated account, whether it’s a special savings account you set up through your bank or an account you control within a settlement program. The goal is to settle upon a realistic repayment plan based on this account.
Commit to making robust, routine payments here — even if it means having to streamline your budget to the max.
Negotiating with creditors is not something we’re born knowing how to do. Understanding the process up front will maximize your chances of reaching a favorable settlement, whether you tackle the process on your own or with a debt relief partner.