A reduced credit card payoff, or settlement, involves paying less than the balance on your account. Many consumers mistakenly think that only debt settlement companies can negotiate a reduced credit card payoff. Fortunately, you don't need a third-party service to reach a settlement. With a bit of knowledge, any consumer can negotiate a payoff. However, you need to meet a certain criteria and follow the correct procedure.
- Skill level:
- Moderately Easy
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Things you need
- Certified mail receipt
- Check or money order
Handle calls from your credit card issuer with caution, once you are late on your payments. Keep your answers brief and don't provide details about your income or available assets, suggests the MSN Money website. During the first 90 days, your creditor will contact you to get you to pay or to find out why you're not making payments. Let your creditor know that you cannot pay due to a job loss, for instance, but that you will contact them as soon as you're able to make a payment.
Wait for your creditor to offer a settlement, advises Bankrate. After two to three months of delinquency, card companies typically transfer delinquent accounts to their recovery department. Once your account is placed in the recovery department, you can expect to reach a settlement of less than 50 per cent, says Bankrate.com.
Expect a payoff, or settlement, offer at about 180 days of non-payment activity. If your creditor's offer is more than 50 per cent, make a counteroffer.
Request the terms in writing once you agree on a reduced payoff amount. Make sure that your creditor will accept your payment and report the debt as "Paid in Full" to the credit bureaus. Pay in one lump sum, if possible. However, card companies may set up payment arrangements in three monthly instalment.
Make a copy of the agreement and the check, and save them for your records. Mail your payoff check via certified mail. Check the return receipt box.
Tips and warnings
- You may need to pay taxes on the forgiven portion of the debt if it's more than £390, according to IRS.gov. However, there are some exceptions. Consult your tax preparer.
- Creditors can file a lawsuit against you prior to six months of delinquency, but the risk increases each month after the six-month period.
- Be aware that a negotiated credit card payoff will lower your credit score.
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