Settling Credit Card Debt Yourself Without Bankruptcy[yoast-breadcrumb]
Settling Credit Card Debt Yourself Without Bankruptcy
Credit card debt can be overwhelming. The high interest rates and fees lead to balances that just seem to keep growing. For many people, bankruptcy seems like the only way out. But there are other options. Settling your credit card debt yourself is one approach that can help you get out of debt without declaring bankruptcy.
With do-it-yourself debt settlement, you negotiate directly with your creditors to try to settle your debts for less than you originally owed. It takes determination and negotiating skills, but can save you money compared to hiring a professional debt settlement company. Here’s what you need to know about DIY debt settlement.
Who’s a Good Candidate for DIY Debt Settlement?
Before attempting to settle your credit card debt on your own, make sure it’s the right approach for your situation. DIY debt settlement typically works best for people who:
- Have unsecured debt like credit cards, medical bills or personal loans (not secured debt like auto loans or mortgages)
- Are behind on payments and can’t afford minimum payments
- Have lump sums of money available to offer as settlement payments
- Are willing to accept damage to their credit in order to settle debts
If you’re still making payments and keeping accounts current, other options like debt management or balance transfer cards may be better. If you have assets creditors could seize, bankruptcy may provide more protection.
The Debt Settlement Process
If you decide DIY debt settlement could work for you, here are the basic steps:
- Stop making payments. When accounts become delinquent, creditors become more willing to negotiate.
- Save up lump sums to offer as settlement payments. Banks want to see you have the ability to pay.
- Call creditors and make settlement offers. Typically you’ll offer 30-50% of the balance.
- Get any agreements in writing before sending payment.
This process allows you to resolve debts for pennies on the dollar. However, it also comes with consequences like credit damage and the risk of getting sued. Make sure you fully understand what you’re getting into.
Contact Creditors to Negotiate
Once you’ve saved up some funds to put towards settlements, it’s time to start negotiating. Call up your creditors and explain your financial hardship. Tell them you want to resolve your balance but can only afford to pay a portion.
Have an amount in mind to offer based on what you can afford. Aim for 30-50% of your balance if possible. Creditors may start higher so be prepared to negotiate. Get any agreements in writing before sending payment.
You may have to try different tactics with each creditor. Some may refuse to negotiate at all while others could settle for less. Don’t get discouraged if your first attempts don’t succeed. Persistence and continually improving your offer pays off.
Be Prepared for Settlement Consequences
Settling debt yourself allows you to resolve what you owe at deep discounts. But it also comes with consequences you’ll have to be prepared for. Be aware of the risks like:
- Your credit score will drop significantly and take years to recover
- You may get sued by creditors you stop paying
- Any forgiven debt could be taxable income
- Creditors may refuse to negotiate at all
The damage to your credit and finances can be severe. Make sure you are choosing debt settlement as a last resort after exploring other options.
Alternatives to DIY Debt Settlement
Debt settlement is just one of many strategies for dealing with unaffordable credit card balances. Depending on your circumstances, you may want to consider:
- Credit counseling – Nonprofit agencies can help you with free budgeting assistance and setting up debt management plans.
- Balance transfers – Moving balances to a 0% APR card stops interest from accruing and makes balances easier to pay off.
- Debt consolidation loans – Taking out a personal loan at a lower rate can reduce monthly payments.
- Bankruptcy – Declaring Chapter 7 or Chapter 13 bankruptcy fully discharges many debts.
Each option has pros and cons to weigh based on your financial situation. Consulting a nonprofit credit counseling agency can help you decide.
When to Work With a Debt Settlement Company
You may prefer to hand off negotiations to a professional debt settlement company. These firms have experience negotiating with creditors and can take the burden off your shoulders.
However, debt settlement companies also charge hefty fees for their services. Fees often amount to 15-25% of any settled debt. Make sure to get an itemized list of all fees upfront so you know the true cost.
DIY debt settlement may make more sense if you only have a few accounts and are willing to put in the work. But if you have multiple debts and little time, a company may provide value.
Beware of Debt Settlement Scams
Unfortunately, the debt relief industry is ripe with scams that prey on desperate consumers. If hiring a company, do your research to ensure they are reputable. Warning signs of a debt settlement scam include:
- Asking for large upfront fees before settling any debts
- Guaranteeing they can make debt go away or repair your credit
- Telling you to stop communicating with creditors
- Pressuring you to sign up immediately
Only work with a debt settlement firm that is transparent about fees, provides a detailed contract, and helps you understand all your options. And never stop paying creditors until you have a written agreement.
Questions to Ask Before Settling Debt Yourself
If you’re considering DIY debt settlement, make sure to ask yourself these important questions first:
- Do I have the lump sums saved up to make settlement offers?
- Am I ready for my credit score to take a hit?
- Can I handle negotiating with creditors on my own?
- Have I looked at all my alternatives like credit counseling?
- Can I afford the risk that creditors may sue me?
If you can answer these questions and are ready to take on the challenge, DIY debt settlement could help you finally tackle your credit card debt. Just go in with eyes wide open.
Tips for DIY Debt Settlement Success
Settling your debts yourself is difficult, but can be done with some savvy negotiating. Follow these tips to improve your chances of success:
- Wait until accounts are at least 90 days past due before reaching out
- Have lump sum amounts ready to offer, don’t make empty promises
- Start with small settlement offers then negotiate up
- Follow up regularly if creditors don’t accept your first offer
- Get everything in writing before sending any money
With patience and persistence, you can negotiate your own debt relief. Just don’t expect overnight results.
The Bottom Line
Debt settlement can seem like your only way out when you’re drowning in high-interest credit card balances. But settling debt yourself is challenging and comes with consequences. Make sure to explore nonprofit credit counseling for advice on the best approach for your situation.
If you have the determination, DIY debt settlement may help you resolve debts for less without the cost of hiring a company. Just go in informed and with realistic expectations. With hard work, you can take back control of your finances.