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Do-It-Yourself Negotiation of Credit Card Debt?

On a somewhat regular basis, posters on my forum ask questions like “Company XYZ will negotiate my settlement for 15% of my current debt, is this a good price?” or “The debt settlement company is non-profit so they must be legit, right?” The answer is a big fat “NO!” for both. The truth of the matter is that with a bit of research, debt negotiation is something you can do on your own without paying a dime.

Do-it-yourself vs. paying a company
First of all, regardless of whether you pay someone or go it alone, there’s absolutely no guarantee either approach will be successful (I’ll say more about that in a minute). But at least if you fail on your own, the only loss will be your time. Contrast that to the hundreds [probably thousands] of dollars in nonrefundable fees you would have paid to a settlement company. Which would you prefer?

If you’re not familiar how the settlement process works, here it is in a nutshell:

  • Step One: The settlement company will instruct you to stop paying your credit card bill(s) and begin paying into a trust account they set up. A portion of that money will be for their fees and the rest will go towards a lump sum amount, which will *hopefully* be used to settle your debt.
  • Step Two: This process usually continues for a few months, in order for the lump sum to grow large enough. Once it reaches a certain amount, the settlement company will basically contact the creditor on your behalf and say “Hey, John Smith is willing to settle his $10,000 debt for $5,000. Will you accept?”
  • Step Three: The creditor either accepts the settlement or says no way Jose. Many banks actually have strict policies which prohibit them from working with settlement companies altogether, so the answer might be “no” regardless of how good the offer is.

Are these things you can do on your own?
For starters, I would like to point out I am not a lawyer… I’m a consumer just like you. Therefore nothing that follows is legal advice. You should consult an attorney or professional financial adviser before tackling debt negotiation on your own. With that said, let’s consider the mojo needed to pull this off…

Expertise
If you hire a legit company, hopefully they have extensive knowledge and experience in settling credit card debt. But is this information you could learn on your own? There are a number of online guides, ebooks, and YouTube videos which claim to teach the process so you can do it on your own, for free. I cannot vouch as to the legitimacy of these sources, but I can say that I have read success stories by people whom purportedly used them.Discipline
In my personal opinion, the biggest benefit a professional offers is that they force you to save up the lump sum amount (since they’re collecting monthly or bi-weekly payments from you). Some people may not have the discipline to save that money on their own. But if you do have the willpower to do so, why are you paying someone to do it for you?Smooth Talker
Perhaps that’s not quite the word I was looking for, but my point is that some serious phone finesse will probably come in handy when negotiating with the credit card company. For some people this is right up their ally, meanwhile others may have a difficult time doing this. For the latter, I suppose paying someone to do the dirty work might be beneficial, but will they really be able to do a better job than a close friend or family member of yours that, as Trump would say, knows the art of the deal? Knowing some negotiating tactics couldn’t hurt either.

The bottom line
Do-it-yourself or not, there are quite a few drawbacks involved with settling. For starters, the consequences of credit card default can be catastrophic on your credit record, sometimes nearly having the same impact on your score as a bankruptcy. Secondly, during the process your debt keeps growing with penalty interest rates, late fees and the whole nine yards. So by the time you actually have the lump sum ready, your debt may have grown substantially. Then of course there’s no guarantee that the bank will even accept your proposal, whether it comes from you or someone else. Oh yeah, and let’s not forget those fees if you are paying someone to do it. So whatever direction you go, extensive due diligence is a must!

About The Author: This guest post was written by Michael, the founder of CreditCardForum, a forum and blog for discussion by consumers. He writes all of the site’s credit card reviews & articles and has an interesting debt story of his own, from being walloped with tens of thousands in medical bills at the ripe age of 18!

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8 thoughts on “Do-It-Yourself Negotiation of Credit Card Debt?

  • Great article! I mean, why not negociate for yourself? It would definitely save you money, and once you realize that you can be in the drivers seat (and not the collection agency), the process can be fairly simple (not easy, simple).

  • The point about being a “smooth talker” is a good one, though I know what you mean about it being not quite the right phrase. If you can convince yourself not to be overly nervous or discouraged, you’re in a better position than anyone else to sound honest, motivated and sincere about working to solve your debt problems in the best possible way for both you and the company.

  • Wow…really good suggestions. I feel silly, but I didn’t even think of a way to go about debt negotiation when I needed to. I simply let the person on the other end do all the talking while I sat there looking like a lost child!

    Great blog btw!

  • I’ve read a number of articles on the subject of debt negotiation or settlement and you have done a great job of summing up what most of them have. For further reading you might want to check out my blog which contains a lot of pros and cons and advice about credit card debt.

  • Great job Sandy.

    It’s sad to see a lot of companies taking advantage of people by giving them the false perception that just because they are a debt settlement company, they have “special relationships” with creditors.

    As a matter of fact, there are few major creditors who will NOT work with settlement companies.

    Settling your accounts on your own takes a lot of discipline, but it can be done. You can also talk to your credit card company to ask about special hardship programs they have to re-age the account and get a reduced interest rate.

  • Yeah; but isn’t it true that a settlement company knows the ins-and-outs of the business, so that your chances of recouping something at least are better than a solo approach?

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