Hello everyone
I'm a professional negotiator at a major law firm in New York City specializing in credit card settlement. I've been doing this for a long time and thought I could help some people here. Last month I settled over $2,000,000 of debt over 259 accounts at 80 different creditors. My average settlement percentage was 32%. My job entails calling and emailing creditors to negotiate debt down - primarily credit cards. Here I'll answer some common questions and give you the tools to settle your own debt. if any of you have questions about anything or want to know the parameters for a specific creditor or collection agency. Thanks and enjoy!
How will it affect my credit?
Under FICO 9, anything reporting as settled in full or closed collections are weighted far less than in past models. your credit will typically improve much more quickly under this model. YMMV, however. It depends on other things in your report
What is charge-off?
Charging off is when a creditor considers a debt uncollectable and places it for outside collections. Many creditors have internal departments, many place charged-off files with outside agencies or law firms for collections, and many do a combination of both. Charging off is not to be confused with discharged. a discharge means the creditor writes the debt off and no longer has the legal right to collect. charging off happens at or around 180 days
What do i do to keep from being harrassed while i wait for charge-off?
Under the FDCPA, if you ask a collector to only contact you in writing, they must abide. If they call or attempt to call you, you can have them fined $1000. to prevent constant calls, do the following:
1. Say the following script script:
"I have fallen on hardship. I am looking at all options to resolve my debts. Please only contact me in writing moving forward. Have a nice day"
DONT SAY ANYTHING ELSE. Dont answer any questions. say those three sentences and they MUST contact you in writing from there on out.
2. get a virtual phone number (optional)
You can get a number from a service like google voice for free. give the creditors that number and they'll make annoying calls to it.
IMPORTANT NOTE: Original creditors do not have to abide by your request to not call. Do the virtual phone number while it is still at the OC
Can i be sued?
in short, yes, absolutely. Creditors have every right to sue you. its not uncommon but it is not the end of the world if your account ends up at a law firm or even if you are summonsed. That will be addressed in the guide.
What are the tax implications?
Anytime the amount of debt discharged exceeds $600, the creditor must file a form 1099-C to the IRS reporting the discharge of debt. this means you will have to pay taxes on the dicharged amount and it will count as income.
What about rewards?
typically, rewards points will be lost if you settle. if there is a significant amount, i have worked deals where that is a stipulation.
Can I settle other accounts and keep some cards open?
Yes, absolutely, but some creditors may see the delinquency and increase your APR, decrease your credit line, or even close your account. Prime lenders like chase, amex, and discover are more apt to do this than others.
Note: do not do this with a single creditor. they will close your other account immediately. also, do not bank at the same place as one of your creditors. they have the right to set off and can take money from your account without a judgement
Won't my balance go way up?
Wduring the pre charge-off period, cards will continue to accrue late fees and interest. typically, from the day you stop paying, this comes out to 12-20% of the balance. once an account is charged off, fees and interest no longer continue to accrue with MOST creditors.
Important note about transferring to collections agencies:
If an account is placed with a collections agency, the original credior itself cannot continue to collect as well.
GUIDE:
First, you have to stop paying. Yes, completely. even a $1 payment will reset the charge-off cycle. the creditor will call you and send scary letters but you have to stop paying. there is no way around this if you want to settle so you have to commit to this. this will provide instant relief financially and will start the charge-off clock.
Second, save.
try to save as much as you can handle. dont overstress yourself but try to save at least 30% of your total balance. this will help when you start negotiating.
Third, wait.
wait 180 days from the day after you stop paying. this is when 9/10 cards will charge off.
Once 6 months comes:
Start locating accounts. call up each and every creditor and ask
"i was wanting to see if my account is still in your office or if it has been placed for outside collections"
be curteous and polite. take the name and phone number of the outside agency if there is one. collections notices will also be good indicators. Keep those.
Once you have located all of the accounts, decide how much you can afford per month. amost every creditor will allow you to pay the settlement over several months or years. if you have a lot of large accounts, this can add up, so be prepared. this will always be less than what your minimum payments would be, and instead of paying for 30 years or more, it may be only a year and that balance is completely gone.
HARDSHIP/FINANCIALS
almost every creditor will ask for hardship info. this means what caused you to stop paying. this is where a little white lie is okay. The most common are some sort of injury, health issue, accident, job loss, home repairs, or something along those lines. if you just say "i charged them too much and couldnt stop" you will not get a settlement. for financials, if you make $120,000 a year, dont tell them that. say you have a small salary of 2000-5000 a month, but be honest with your mortgage or car payments. they can check this. lying here is not illegal and the only repercussion of getting caught is you have to wait another month before you can settle.
CALLING IN
THE MOST IMPORTANT THING IS TO BE KIND AND POLITE TO THE CREDITOR. IF YOU ARE MEAN THEY WILL GO OUT OF THEIR WAY TO NOT SETTLE. THEY ARE PEOPLE TOO.
When you call the creditor, if you cannot find the creditor number for their direct department, call customer service and ask to be transferred to the collections or recovery department. someone will verify your identity at which point you ask for the current balance and say that you would like to see if you can negotiate a settlement on the account. They will ask what you had in mind and at that point, make an offer 10-20% lower than the parameter. make sure to mention the terms(months). 9/10 times, the creditor will counter at 60-90%. come up to the parameter and once you hit the parameter, dont come up more than 10% from it. if they give you a hard time, hang up and try again in a week. if they give you a settlement, tell them which date you would like to pay each month, take their name, and MAKE SURE TO ASK FOR A SETTLEMENT LETTER. DO NOT PAY A PENNY WITHOUT THE LETTER. without this letter, the agreement isnt in writing. if they say they dont offer letters, theyre lying.
And thats it. give the creditor as little information as possible without being rude.
Parameters to follow