Reducing Credit Card Debt - Part 1

You must be willing to document, communicate, negotiate, and follow up if you want to go about reducing credit card debt alone. These are essential skills for successfully getting debt free. If you are willing to do these things then there's three golden principles that you must always follow:

1. The accounts you are trying to settle must be delinquent

This is NOT a method of paying less for items you purchase (that you can't afford!). Creditors are not looking to settle for less than the full amount you owe them until your account is past due. That means usually around 180+ days. At this point, creditors write your account off for a tax benefit as bad debt. At this point the creditor usually sells off the account to a third party collector.

Bad debt is often sold to collectors for pennies on the dollar. A $10,000 debt is typically sold for around $350! Its for that reason that we can negotiate with collectors - if they settle for 50% of the original debt amount, they're still making a huge profit!

2. Focus on documenting EVERYTHING. This is much more important than conversations you have on the phone!

Never make a payment by phone!

Collectors will always try to get you to pay via check by phone. Do not accept this! Say something to the effect of:

"I'm not able to make a payment immediately but do want to close this account as soon as possible. I know you all want to collect your cash right now, but I'm afraid that is not possible at this time. I'm about to have $x (where x is 35-50% of your debt balance) soon and I'd like to settle one of my accounts with whichever creditor can offer me the best deal. Can you send me a hard copy of an offer in the mail?"

They will probably send you an offer that is still way higher than you want to be paying such as 80-85% of the full amount. Now what you want to do is write a "hardship letter." A hardship letter basically describes why you are unable to pay the amount they are saying you owe.

You can cite, health issues, unemployment, family/marriage issues, natural disasters, accidents, reduced income, or disability to name a few possibilities. Use as much detail (within reason) as possible to describe your hardship(s) as this can help with your negotiation. If you can obtain documented proof of any of them, it doesn't hurt to include it with your hardship letter. We'll continue with the hardship letter in part 2.