Credit card companies will voluntarily reduce your debt balances - if you present the right offer at the right time. Before you make that first offer, however, you need to understand the factors that motivate delinquent debt supervisors at the credit card companies.
In my law office, we often counsel potential bankruptcy clients to hold off on filing for Chapter 7 bankruptcy or Chapter 13 bill consolidation, and to try to negotiate lower balances and to avoid bankruptcy. Here are some of the techniques and strategies we have learned over the years.
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First, you need to realize that to the credit card company, you are a number - an entry on a spreadsheet. Although you may be stressed out because of your credit card balance, no one at the credit card company's collection office knows who you are or cares about your financial hardship.
The bill collectors employed by the credit card company are trained to use psychology to scare you and intimidate you into paying. Interestingly, the most powerful consumer protection law - the Fair Debt Collection Procedures Act - applies primarily to outside collection agencies, not to in-house bill collectors. This means that in-house bill collectors can use much more aggressive techniques to squeeze you for payment.
Therefore, the first rule for negotiation is to recognize the intimidation psychology and to ignore it. Remember, you have something they want - money - and if they want your money voluntarily, they will have to work with you.
Second, recognize that credit card company collection practices are driven by business models. Mathematical analysis shows that slightly overdue debt is likely to be paid, whereas the older your unpaid account becomes, the less likely that the credit card company will see payment.
As a practical matter, this means that the credit card company will not negotiate with you at all until your unpaid balance is at least three months old. Once a debt falls into the 90 day past due column, the collection percentages go way down. This is generally the ideal time to start your negotiations.
If you let your account go much longer than 90 days unpaid, you run the risk that the credit card lender will turn it over to an outside collection company or send it to a lawyer for lawsuit. These options may or may not impact your negotiation strategies, but they add complications and unknown elements. You can always start new negotiations with one of these new account owners later - at the outset it is best to negotiate with the actual credit card company.
A collateral technique that we have used with some success is to send small payments every 6 weeks or so. The purpose of making these payments is to permit your account to age even more, while keeping it in house. Not every credit card company will hold off on transferring the account but some will.
When you approach the credit card company to negotiate a settlement, your best chance for success will be to have a lump sum equal to about half the balance available. Very few credit card companies will accept payment terms in negotiated settlement. At our law firm, we generally advise against raiding a retirement plan to come up with the lump sum since retirement money is usually considered an "exempt" asset in a bankruptcy and not reachable by any creditors.
If you don't have the full lump sum, you may be able to work a deal where you break up your payment into two smaller lump sum payments - one paid now and the second in three months.
So, as you start the negotiation process, you will most likely have success when:
1) you step back from any emotional issues you may have with the outstanding balance
2) you treat the negotiation as a straight financial transaction - blame or guilt is not part of the equation
3) the best timing for your negotiation is when your account is at least three months past due, but not yet turned over to a lawyer or outside collection agency
4) you have access to a lump sum equal to about half of the outstanding balance
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