Credit
card companies want you to
negotiate credit card debt
without bankruptcy because, if you
declare bankruptcy, they do not receive any payments. It is in the best interest
of you and your lender to negotiate a different solution. Getting out of debt the
right way can save your credit and reduce financial stress.
1. Take a Debt Inventory
Before entering any debt elimination program,
you need to understand how much debt you really have. Your total debt include
your mortgage, car payments, installment loans on appliances or electronics, tax
liabilities, student loans and all credit card debt. Create a reference sheet
for yourself that presents an accurate liability statement. On the sheet,
include initial principal, remaining debt and current interest rates.
2. Take an Asset Inventory
You also need to determine how much you own
outright. If you qualify for bankruptcy at this point based on your low asset
sheet and income, then debt negotiation may not be right for you. Those meeting
the requirements for Chapter 7 bankruptcy, or liquidation, may particularly be
best-served by that process. Those meeting requirements for Chapter 11 and 13, though,
may consider debt settlement as a better option.
3. Determine Your Ability
to Pay
Based on your debts, assets and income,
determine how much you can realistically afford to pay. In order to enter
debt-settlement, you will need to have a lump sum payment. If you do not have
any cash on hand, consider debt consolidation and/or refinancing. In this
option, you will need to have a target date in mind for when you would like to
repay all your loans. The target date should be realistic given your current
debt load and ability to pay. For example, imagine you would like to be debt
free in five years, have $25,000 worth of debt, and can only pay $300 per month.
You will need to first negotiate the debt down to about $15-18,000. Next, you
will need to locate a lender to provide that amount at an interest rate that
keeps your monthly payments below $300.
4. Negotiate with the
Credit Card Company
Prepare a proposal for your credit card
company which states how you would like to settle. If you are offering a
lump-sum payment, state exactly when you can provide this payment by. Give your
terms and an explanation for why you are seeking refinancing or consolidation if
you are pursuing this option. You may want to prepare references such as
statements from your employer, mortgage lender or bank. This will show the
credit card company you are not likely to flee or default on payments. You will
also want to ensure there is an appropriate contract written with the terms you
agreed on before walking away from the negotiation table.
5. Contact a Debt
Negotiation Company
Debt negotiation companies can often locate
better deals with lenders than you can alone. However, in recent years many of
these companies have been exposed for bad lending practices. If you are working
with a debt negotiation company, make sure you know who you are dealing with.
The company should be rated by a major ratings agency.
Eliminate Credit Card Debt
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