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12 Dec 2011 |
The Difference Between a Debt Negotiation Agreement and Credit Card Debt Settlement Letter |
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By Vic Chevalier Being delinquent on credit card debts is no laughing matter. The endless annoying collection calls, torturous threat of lawsuits, and fear of bankruptcy can create many sleepless nights. But, a debt negotiation agreement can take away a lot troubles. The following statistics explain why so many people are opting for a credit card debt settlement letter via this superior form of debt elimination: ● Many consumers and small business owners live unconsciously enslaved to their revolving debts; Fortunately, a debt negotiation agreement can get you out of the monstrous debt trap. It also beats credit counseling, which only reduces interest rates. In contrast, a good debt negotiation can drastically reduce your credit card balances. There is magical ingredient. The remarkable debt relief is based on real numbers and averages as you’re about to see… When Credit Card Companies Lose Billions – You Win! Each year, well over one million bankruptcies strip billions of dollars in profits from credit card companies like Chase, Capital One, and Discover. Additionally, each quarter banks charge off about $20 billion in outstanding credit card balances. Capitalizing on the above deficiencies, a debt negotiation agreement helps creditors recover funds they might lose if you declare bankruptcy or stop meeting your financial obligations. They can also collect more money than having to pay as much as a 40% commission to a collection agency. And what it means for you is ultimate peace of mind! No more debts. No more bills. And no more need to file bankruptcy. Next, we will discuss the mechanics between the debt negotiation agreement and the credit card debt settlement letter… The Debt Negotiation Agreement The debt negotiation agreement is basically an accord between you and the credit card company to reduce a delinquent balance. This reduction permits you to pay less than the full amount of the debt as “payment in full.” For example, if you owe a $12,000 balance, they may accept $6,000 as a full payment. The debt negotiation agreement initially manifests from a verbal negotiation or debt arbitration. The fruit from the negotiation is a written settlement offer from the creditor known as the “credit card debt settlement letter.” The Credit Card Debt Settlement Letter The credit card debt settlement letter is commonly referred to as the “settlement offer.” This settlement letter is a written confirmation from the creditor addressing the terms of the finalized settlement. To reap the rewards of their settlement offer, you must remit full payment of the settlement. A word of caution: If you fail to pay the settlement by the date specified on the settlement letter, the credit card company will void the settlement offer and demand immediate payment of the original balance. Thus, to avoid sabotaging a good settlement arrangement, you must clearly follow the payment instructions on the settlement letter. (Note: You can Google some great examples of debt settlement letters. Keep Records of the Settlement Letter for Your Protection It is important that you retain a copy of the credit card debt settlement letter with proof of the settlement. This way, if in the future the creditor or any collection agency claims that you still owe the debt, which happens regularly, you can show them proof that the debt was paid. Another reason for keeping copies of these records is that the credit card company must contact the credit report bureaus so that they indicate on your credit reports the debt was settled and brought to a “zero” balance. If you find that this information is not on your credit report after sixty days from the date of the settlement, you should immediately mail certified proof of the settlement to the credit report bureaus to have the issue corrected. The Term Settlement Letter Now, let’s examine another type of letter, the term settlement letter. In lieu of a lump sum settlement, the credit card company may accept a “term settlement.” This would produce a term settlement letter, which helps you extend the debt repayment period. A term settlement allows more time to pay off the balance, but it also generally weakens the settlement offer. For example, on a $5,000 card balance, the credit card company may agree to spread the debt repayment to two to six months. However, instead of asking for a lump sum $2,000 settlement (40% of the balance), they may ask for $3,000 (60% of the balance). Another issue is that you must ensure to make every scheduled payment on the term settlement letter. Otherwise, if you miss a payment, the settlement offer will be off the table and you will need to repay the entire outstanding balance. Article Source: http://EzineArticles.com/?expert=Vic_Chevalier |
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How can we may a term settlement offer with the credit card companies we have. We are in over our heads on credit card debt. We don’t qualify for a home equity loan to pay off the cards but we could pay them off over time. Do we need an attorney or can we approach the credit card company ourselves?
It’s absolutely not necessary to hire an attorney to settle your credit card debt. Plus, attorney will charge additional fees in additional to debt settlement fees, if they have to represent you in court against a creditor lawsuit. But, I wouldn’t recommend going about settling your credit cards on your own. Hiring a professional debt settlement firm will substantially increase your chances of getting a major reduction on your credit card balances. Here are some examples on what you can expect from a professional debt negotiation service: http://www.debtfreeleague.com/debt_settlement_letters.html
I am only familiar with debt settlement from a few commercials I had seen on television some months back (back when I still had cable…). I am finding this information to be really interesting. While I’m not in a position myself to feel concern (as I don’t use credit cards at all yet in my life), having the information even before I get into using credit cards will be of a lot of use in case I ever get in trouble; which I hope to keep myself out of quite frankly.
The main question I have for you after reading this is how does a debt negotiation agreement work out in the favor of the credit card companies in any way if they are settling to accept half of the payments? Also, what is stopping people from actively exploiting this, running up their credit card bills (perhaps getting to $10,000 dollars in debt), then sending in a settlement letter to try and settle for less. Letting people off the hook just seems to be like we are not holding people accountable for the debt they rang up. Maybe I’m viewing this wrong though, any thoughts?
Wow! Chris, we noticed you recently posted several comments on the Debt Free League blog and are appreciative for all of the thought-provoking feedback. This particular comment brought up some EXCELLENT questions that will surely be of interest to our readers:
QUESTION #1: How does a debt negotiation agreement work out in the favor of the credit card companies (if they are settling to accept half of the payments)?
ANSWER: Obviously, credit card companies DO NOT negotiate settlements with the average Joe. But, with proper guidance from a debt negotiation company, they will be more receptive to reach a negotiation with a very particular consumer. Financially-speaking, this would be a cardholder that is legitimately deemed “insolvent” due to an unfortunate event, such as a divorce, unemployment, or a medical problem. So, if you suffered a similar financial hardship, lost a lot of income, and can demonstrate to them on paper that you have more liabilities than actual assets, they may be more inclined to prepare a debt settlement letter in your favor.
Additionally, they will be more apt to work diligently to achieve a negotiation due to two key reasons:
(A) They might be fearful you’re on the edge of filing bankruptcy. If you file under chapter 7, they lose out and get nothing from you. If you file under chapter 13, they’d have to wait up to 5 years to collect from you and you might have to pay back 35-55 cents on each dollar owed on your credit card balances. The bottom line is that credit card companies don’t like to lose or to play the “waiting game.”
(B) if your credit card debt is unpaid more than six months, they would be required to declare it as charge off, also known as a write off. However, in the likelihood of such event, it wouldn’t clear you from having to repay the debt. You would still owe 100% of it, plus potential interest and fees compounded to the principal balance.
QUESTION #2: What is stopping people from actively exploiting this, running up their credit card bills (perhaps getting to $10,000 dollars in debt), then sending in a settlement letter to try and settle for less?
ANSWER: Banks are no dummies to let anybody off the hook. On the contrary, credit card companies genially craft usurious schemes to hook you like crack and keep you hooked using credit cards. But, most consumers are upright people, who morally want to pay back their debts. Banks also have crooks on their radar and are very skilled at smelling a rotten fish. So, if I were you, I wouldn’t attempt scheming the system. Here’s the other thing to think about… Why risk damaging your credit just to save a few thousand dollars when in the long term, getting bad credit could cost you tens of thousands more?
Thanks so much for responding to my comment! It makes browsing and commenting on your blog so much better then most other, similar websites I’ve been on in the past. I actually feel like I’m learning something here, and that is a very cool thing!
You’ve really shed some light on what goes on in the “mind” of the credit card companies. As a consumer, we don’t often get to see what they experience both personally and legally. I think understanding what credit card companies have to deal with when someone is not paying back their debt makes it easier to function. If you legitimately have become unable to pay back your debts (and are not just sitting on piles of cash in your bedroom), then making a debt settlement can come pretty easily. Strangely enough, it almost seems like credit card companies are taking the moral upper-hand when it comes to allowing people to settle their debts at a lower cost. Maybe I’m giving them too much credit, because filing for chapter 7 bankruptcy is a way to escape the debt as well (legally); but it’s interesting none the less.
On that last answer, the feedback you provided is very interesting. That question was one always quietly in the back of my mind when I see debt settlement ads, and not to mention when others in my household mention how people are able to “scheme” the system so easily because of legal debt settlement. I honestly think people need to get more informed on what constitutes debt that is legitimately worthy of a settlement. Even despite your response, I still feel somewhat concerned that a few people could slip through the cracks and get off with scheming the system in someway. I suppose that is what happens when you are more of a legalist like myself. I’m going to imagine if someone manages to slip through the cracks, and the credit card company finds out; are they permitted to file a lawsuit themselves against that individual in any scenario?
Credit card companies can sue under any grounds violating the mutual credit card agreement between the cardholder and the credit card company. They can sue you for $1. But, how litigious are they? Remember, a credit card debt is an unsecured debt. Unlike a mortgage loan, in the event of a lawsuit, the creditor has no legal recourse to secure collateral. Also keep in mind that pursuing legal debt collection can be costly and time-consuming, plus there’s no guarantee that the credit card company will recoup any money as a result of filing a collection lawsuit.
In the real world, banks charge off billions of dollars in unpaid debts each year in lieu of taking a deadbeat debtor to court. But, I might add that creditors are way more inclined to sue people that attempt to scheme the system to avoid repaying their debts. I hope this answers your question.
I stumbled upon your website as a result of needing some financial guidance, as I have been in debt for quite a while and more recently it has become a major issue. This article in particular has been very useful in helping me differentiate between debt negotiation agreements and credit card debt settlements. Oddly enough, I already sat down with my lawyer and though he explained these terms to me; I still could not wrap my head around what they meant! Between these two types of agreements, which one would you typically recommend to a person who is in debt and currently unemployed? I’m not sure if I’m asking the right question here, but I find making this sort of decision on what to do next to be particularly difficult given my current situation…
Essentially, the two are intertwined. A credit card debt settlement letter is the byproduct of a debt negotiation agreement. The debt negotiation agreement is the agreement that manifests from the physical debt negotiation between the debt negotiator working on behalf of the consumer and the creditor. And, the credit card debt settlement letter is the written confirmation furnished to the consumer by creditor, which outlines the actual debt settlement terms. The credit card debt settlement letter lists the outstanding credit card balance and the amount that the credit card company agreed to accept from the consumer as “payment in full.” Hopefully, this explanation gives you more clarity.
I believe that your protection is the most important aspect of this deal here, by Keeping some Records of the Settlement Letter is in your best interest and for Your Protection as well. And the credit card debt settlement letters are all related to the consumer and along with the creditor themselves.
These sound like really good options for people who just can’t make their credit card payments anymore. It sounds like the debt settlement letter would be a great option if the person can manage to get the funds to pay off the full amount required in the letter. I think those already stretched might have an easier time with the term contract though. What do you think?