Debt Consolidation, Debt Settlement Negotiations and Credit Repair

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Debt Consolidation, Debt Settlement Negotiations, and Credit Repair

It is amazing how many people create serious problems for themselves by over-extending their credit. As a consequence, a whole industry of debt consolidators and credit repair counselors, some of them working as non profit organizations, have sprung up around the country.

The negative effects of credit problems are numerous. So many decisions, for instance for loans and insurance applications, even employment opportunities, are based on your credit rating. If you have had poor credit in the past, it's time to move on. There are several things you can do to improve your credit rating and begin building a solid foundation for the future.

Consumer Credit Counseling, Debt Consolidation, Debt Management or similar companies have been set up by many credit card companies to fight the rising number of defaults.

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These organizations basically work for the creditors—not for you—just like a collection company.

In addition to what the creditors pay the CCC company, they charge you a monthly service fee for dispersing your money to your creditors. Until recently, these companies were paid a commission of around 12% to 15% by the creditors for recovering the debt for them. That means, for every dollar you give to them, the creditor was giving 15 cents back to the CCC company. This changed in 1999. According to an article in the Los Angeles Times "too many people were using CCC companies just to lower their interest rates" and as a result the creditors were cutting the commissions paid to the CCC companies to 8%. Not all of your cards may accept a negotiated plan. Several well-known and commonly held cards refuse to work with ANY CCC company. Nevertheless, Debt Negotiation and Settlement Programs are rapidly becoming the preferred choice of debt elimination for most people severely in debt or considering bankruptcy.

What Credit Repair can and what it cannot do

An important word about Credit Reports and Credit Repair: No one can legally remove accurate and timely, negative information from a credit report. But the law does allow you to request a reinvestigation of information in your file that you dispute as inaccurate or incomplete. There is no charge for this. Everything a credit repair clinic can do for you legally, you can, if you have the time, do for yourself at little or no cost.

If you are short of time, or if you are intimidated by talking to your creditors, there are services that can help. People working in debt collection are not the most sensitive people in the world. Therefore, expect some really harsh and often insulting remark from them. The more they think you are intimidated, the more abusive they can be. One way to reduce their insults is by telling them that you are taping your conversation with them. Because, they are legally not allowed to abuse their position, keeping a record will help somewhat. But remember, you have to tell them, that you are recording your conversation.

By law, credit repair organizations must give you a copy of the "Consumer Credit File Rights Under State and Federal Law" before you sign a contract. They also must give you a written contract that spells out your rights and obligations. Read these documents carefully before signing the contract. The law contains specific protections for you.

Debt Negotiations with Credit Cards

When you start to be late with payments on credit cards the excessive interest charges and late penalties quickly cause your balance to balloon, making it even more difficult, to pay down your balances.

If you are on the brink of bankruptcy, you might consider debt negotiation. This can result in wiping out 75% of your credit card debt balances without the need to declare bankruptcy.

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Why Credit Card Companies would settle

Credit card companies,, be they VISA, MasterCard, AMEXCO or Discover Card, are usually owned by banks or financial institutions. They obviously have to generate profits for their shareholders. When a loan, and a Credit Card Balance is a form of an unsecured loan, is defaulted on, it becomes non-performing. Because this has an immediate impact on the profitability of the lender, the bank or credit card company wants to get as much of the outstanding balance back as it can. They will do this by closing your account and by placing your account, after an initial period, with a group of people - the collection department - either within the bank, or subcontracted. They will start getting in touch with you, asking for their money back.

How Credit Card Companies deal with default

During the initial phase of default, usually about three to four months, the account will be handled by the bank or credit card company themselves. The account officer, who most likely handles several hundred accounts, or one of his minions, will attempt to contact you and see whether there can be a settlement of sorts.

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After that initial period, the collection effort will go to either another group within the bank/credit card company, the above mentioned collection group, or the effort will be sub contracted. One of the things you have to understand is that many of these collection employees work purely on commission. The more they collect, the higher their own income. That is one reason why they are neither very helpful, nor particularly nice or sympathetic. In fact, despite laws that prohibit that, they are often quite abusive.

There are some commentators who recommend that as soon as you know that you cannot pay,


you should contact the credit card to work out an arrangement. Others recommend, that if the inability to pay is short term, you should indeed do that. They go on to argue, that if the inability to pay, has long term reasons (having lost your job, illness, or some other long term condition, that will make a financial recovery impossible), you should delay contacting your credit cards, until you are likely to get an advantageous settlement. ezecredit has no view on this and does not make any recommendations.

When you contact the lender, be prepared. Have your

  • credit card number,
  • address,
  • phone number,
  • social security number,
  • amount you owe, split by
  • the amount from purchases, balance transfers and cash withdrawals; and the
  • amount from late fees and over the limit fees, as well as
  • finance charges and interest,

available and at your "finger tips". Explain to the customer service agent that you are going shortly into bankruptcy. He/she will know that if you do that the lender will not likely receive much of the unsecured credit, he has extended to you. The explain that you would want to avoid that and that you could pay up to, say 25-30% of the outstanding balance, in installments over the next six to 12 months, provided the lender would freeze interest and any further late charges.

Don't think, they will be thrilled. First of all you will be talking to a customer service clerk who cannot make any decisions him- or herself. Secondly, he/she probably hears the same story ten times per day and will have standard replies (which he/she reads from a manual). You might have to suffer some abuse from the customer service agent. By recording your conversation, you might be able to avoid that. But you have to tell the other party, at the beginning, that you record the conversation! This is very important.

It is likely that you have to talk to the customer service agent several times. Most likely the negotiations will happen over several days. Always be prepared for these "discussions" and record the details in writing as well as on a tape. The important part for you is that you have to reiterate your dire financial position and that it will not improve any time soon, if at all. If you are credible and consistent with your story (and we believe it is true, otherwise you would not read this page), it is likely that you will be successful. You will also have to be prepared to talk, at some stage, to a rather "nasty" and aggressive lawyer from the lenders side or, more likely, the subcontracting debt collector. Don't get intimidated! They are "professional nasties" and have heard it all before!

Naturally, you can use a lawyer or debt negotiation company yourself. But both will cost you, maybe a not insignificant amount!

One final most important point: You have to be absolutely sure that you can keep to the payment agreement with the lender or his representative. Not just for next month, but for the full term. Don't enter into a financial agreement that you cannot fulfill. Remember, your credibility with the lender is already at a low level and you do not want to make it worse!


The Costs of a Credit Card Debt Settlement Agreement

There is a "cost", if you make a credit card settlement. The costs is to your credit rating and your pride! However, since you have already defaulted on payments, the credit rating impact might be limited. The credit card company you negotiated with, will report the settlement and the amount of the settlement to the credit agency. You might make a point in your negotiation, that they will state "Credit debt paid in full" and they may or may not agree to that. Whatever agreement you make, it has to be done in writing. You negotiate on the phone, but you confirm the details in writing!

A credit card debt settlement agreement can be an effective way for you to avoid bankruptcy and for the credit card company to recover some of their money. And don't let yourself be stopped because of false pride. Take the temporary pain, and begin getting your financial life back on track.

And, next time round, think before you commit yourself to debt!

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