Offering a settlement on a credit card - how did it go for you?

February 7, 2011 12:02 PM

I'd like to call my credit card company and offer to settle my $10K account for $5K, but circumstances extenuate - how has this worked for those of you who have tried?

For the past four years I've been grinding away at a debt management program that will finally wrap up this summer - yay! When I started, there was one credit card account that declined to participate, and I've been trying to be aggressive in cutting that down to size; right now that one stands at around $10K at 11%.

However, I lost my job last week, and I won't be able to pay the minimum payment, much less the over-and-above I've been managing for lo these many months. Because of the job loss and the little bit of severance that came with it, along with vacation payoff, etc. I have a little extra cash. I also have a 401(k) disbursement, so that cash is available if I need it to do what I want to do: I want to offer a settlement to the outstanding card account, say, .50 on the dollar. I am not able to offer much more than that.

My debt management co. says that I have to be seriously delinquent before the credit card company will entertain the idea. The thing is, through all of this, I've never missed a payment, nor have I ever been late. Too bad, but I feel like now is the time to strike.

For those of you MeFites that have done this, how has it worked for you? Any advice on how to approach this from a debtor's point of view? Do I really need to stop paying for five months for this to happen? Many thanks for your consideration!

posted by DandyRandy to work & money (16 answers total)

Are you prepared to take a pretty sizable hit on your credit score? There won't be much of a way around that unless they get the full amount.
posted by Burhanistan at 12:04 PM on February 7, 2011

AFAIK, it's generally debt collection agents (and agencies) who are granted the authority to haggle regarding your payoff amount - this makes sense, because they buy debts which have been effectively "written off"... therefore, ANYTHING they collect is gravy. I'd imagine the original party with whom you racked up the debt would ONLY be interested in the full, agreed-upon amount.
posted by julthumbscrew at 12:06 PM on February 7, 2011 [2 favorites]

You should only need to be 60 days delinquent before the company offers you a settlement. At least that was the case for me. I couldn't take them up on the offer because the reason I was not paying the minimum was because I lost my job, and blew through my savings, so if I couldn't pay them $100, I just laughed when they offered to settle the debt for $5K.

Note that you'll be taxed for the $5K they take off what you're due.

Unless you have a new job offer, I would consider just making the min payments now. If you pay them $5K now, that's $5K you won't have in a few months to help with your basic expenses.
posted by birdherder at 12:10 PM on February 7, 2011 [2 favorites]

You are about to play with fire. If you go delinquent, it is entirely possible, if not probable, that they will sue you for the entire amount and you will not have very much room to negotiate. I suggest you be very careful about this.
posted by dhammond at 12:23 PM on February 7, 2011

Dhammond, let's be realistic. They are not going to sue him for 10k without offering some kind of deal. And if for some reason they did, you would have a lot of room to negotiate, because they don't want it to go to court. But that just wouldnt happen. Instead, they will sell the debt to a collection agency for 30-40 cents on the dollar and then write off the loss. If the collection agency does not think they will be able to collect, they will turn around and sell the debt to another agency for pennies on the dollar.


OP... Yes, you will need to go delinquent to get a reasonable discount on your bill. If you have proved that you can make your payment on time every time, they have no real reason to open up negotiations. You also don't need a debt managment co to get these offers. Most of these debt managment companies are just short of being a pure scam.

Please remember, going delinquent will have a negative affect on your credit score for the next 7 years. It will be horrible going forward for a minimum of 2 years before it can recover. You really shouldn't go this route if you are able to pay the bill and are just hoping to save some $$$. This is a last option type deal.
posted by ShootTheMoon at 12:30 PM on February 7, 2011 [1 favorite]

My experience has been that only collection agencies are interested in doing a charge-off kind of situation, where you just give them half in one big lump sum. And yes, that will show up on your credit report and stay there for about seven years.

However, I don't think there's anything to be lost by picking up the phone and calling and explaining your situation. I have found in the past that if you call and speak to someone in customer service (might need to ask to go to a supervisor) before your account gets seriously past due, they are a little more willing to work with you. They might not go halvsies on it with you, but they might have another solution that hasn't been considered here.
posted by stennieville at 12:38 PM on February 7, 2011

Another thing, if you start missing payments then your credit card company might automatically jack up your interest rate to loan shark levels. 11% will seem easy.
posted by Burhanistan at 12:39 PM on February 7, 2011

julthumbscrew: that isn't necessarily correct. The original creditors do offer settlements before shipping off the debt to a collector. I think the changes to the credit card regulations made this more attractive to them. The letters and phone calls will mention that you'll get a 1099 for the amount that was taken off the total so you'll need to set aside money for the IRS.

In addition the credit report ding.
posted by birdherder at 1:03 PM on February 7, 2011

$10k is a point where bankruptcy potentially becomes a not-terrible idea. If you're going to declare bankruptcy, it's generally best for everyone to do it as quickly as possible, because dragging things out just costs everybody time and money.

Bankruptcy isn't necessarily just making all of your debts go away. That's chapter seven bankruptcy. Chapter 13 allows you to put together a three-to-five year repayment plan and isn't quite as awful on your credit report, as it involves restructuring, not discharging, a good chunk of your debt.

I'd say it's probably time to talk to a lawyer. A lot of them do free consultations. Check your phone book.
posted by valkyryn at 1:05 PM on February 7, 2011

I used to work in finance and I can say that in the UK, when someone about to go bankrupt offers their creditors £0.33 in the £1, it's considered a win for the creditors. Your offer seems generous by comparison.
posted by dougrayrankin at 1:15 PM on February 7, 2011

You have $5000 to offer in settlement, but you don't have enough for minimum payments? Makes no sense. Set the $5000 aside and make payments from it. Find a job before your funds dry up. Start looking for another job NOW.
posted by Doohickie at 1:57 PM on February 7, 2011 [5 favorites]

As mentioned above and I want to reiterate, the 5000 that is waived off, will be taxed as income to you by the IRS. This is the last option, it will hit your credit score. Keep the debt and make minimum payments.
posted by VickyR at 4:08 PM on February 7, 2011

You probably know this, but if you use the 401K disbursement, there will be substantial penalties and taxes on those funds. I think retirement funds are protected in bankruptcies, so if there's any chance you are going to declare bankruptcy, you'll want to keep that money in the 401K or roll it into an IRA.
posted by willnot at 5:17 PM on February 7, 2011

Yes this will badly effect your credit score but if you can't pay it you do need to stop making payments for awhile then try to settle, just keep calling and asking to settle, you will have to go through a lot of them calling you every day for several months trying to get you to make a payment, don't do it! Just hold out and they will eventually settle but keep in mind the amount you settle on will have to be paid all at once, I think I had a few weeks to pay.
posted by sadieglass at 9:01 PM on February 7, 2011

It depends entirely on the credit card company you're dealing with. I happen to work for 1 and can assure you they all have their own policies on settlements. First, keep in mind the "debt management" companies are for profit. Consumers are under the illusion that those companies care about you & your situation. For profit. Their fees are what motivates what they tell you. Google debt companies & see what you find. The FTC watches them like hawks. Keep in mind your credit card company will be motivated by your delinquency. Not delinquent...not motivated. In other words, the more delinquent you are, the more motivated they are. Again, they all have their own guidelines on settlements. B of A is notorious for accepting low settlements. Always ask for something in writing from them acknowledging whatever settlement agreement you make BEFORE you hand over any money. The balance of what's left after the settlement is charged off as a bad debt. You will receive a 1099 with any forgiveness over $600 (IRS rules). If you know you're losing your job & will be unable to pay the monthly payment then you're credit will be shot in a very short time anyway. In this economy there are hundreds of thousands of people who settle credit card debt every day. I see a lot of misinformation in the comments made on this subject. If you have 1 credit card left to pay, I would suggest you contact them & advise them of your situation & offer the 50% settlement. The tax implication on $5,000 is not a big deal. What bracket are you in?
posted by javajoe at 12:11 AM on February 10, 2011

I was amazed at how polite and willing to work with me one of my credit card companies was... when I called them (Home Depot shout out, for the customer care they gave me). My situation may be a bit different, as we're talking $600 rather than $10000, but I'm getting the feeling that any credit institution is grateful who people who truly want to, eventually, pay them.

The first words out of my mouth were 'I fully intend to pay this debt, I want to pay this debt, but I've ran into an unexpected issue (disability for me, lost of job for you), and I can't handle the payment schedule. I understand this is my responcibility, but are there any programs that can help with this temporary situation?

The guy fell over himself offering sympathy for what I was going through, tapped a couple keys, asked when I believed I'd be back to work, and *poof*. Balance has frozen, no further interest accruing during the length of this hardship understanding, and my payment were cut by 75%.

Obviously, not all companies are going to react that way, but it's my impression that a lot of credit agencies are going over and above in the effort to recoup any of their debt due to the state of the economy. I think saying that you want to be able to take care of the debt, asking for assistance from the customer service rep to -help- you find one will take you a long way. I'm also thinking a call with a pleasant customer who isn't screaming at them probably goes a long way, too. IANAL, but I don't believe this constitutes a 'settlement' on your credit report, which from what I understand, is bad juju. It's a mutual agreement between two entities on a slight chance to the original payment schedule.

If we knew which credit card company you're dealing with, I'd be happy to call and ask if they offer any hardship assistance programs available 'for a friend'. If it's a larger credit card company, they may even have details on their website. It sounds like you want to pay what you owe, but you need time to resettle yourself. I've seen places skip payments for a few months, or like my situation, severely reduce my payment for a period of time. Especially if you've had a decent payment history with them. They get their money over a longer period of time, but they retain a customer who is probably now loyal, and will make more money from :P

(I was assured by the representative I spoke with at Home Depot that this would not be reflected on my credit report, as it was a temporary payment arrangement, not a delinquency or default, but as I haven't pulled my credit report since, can't actually attest to this fact)

Final note: Voices tell you a lot about a call center worker (I am one). If the first person to pick up sounds like a bastard/bitch, trust your instincts, hang up before you give them personal information, and try for the next ;)
posted by waxlight at 3:09 PM on February 11, 2011