Debt Elimination with Credit Card Negotiation

Credit card debt in the United States is at an all-time high, and delinquency rates on installment loans, revolving credit and mortgages have experienced double digit increases, as well. Many credit card issuers will increase an account holder's interest rate after just one late payment - and in most cases, even if that one late payment is received only one day past the scheduled due date.

This legalized form of loan sharking has resulted in thousands of individuals facing financial devastation. If you find yourself in this position and feel that the only option is bankruptcy, think again. There is a better option: debt settlement, also known as debt negotiation. Debt negotiation involves the process of getting the creditor or collector to settle for less what you owe on a debt and forgiving the balance. It's not an easy situation to be in.

Kerry York, executive director of the nonprofit Consumer Credit Counseling Service of New Hampshire and Vermont, says, "Half of our clients who seek debt counseling are new to this type of financial hardship, and they are embarrassed and uncomfortable. The worst thing someone in debt can do is ignore it." Kerry York is correct-the worst thing you can do is ignore the debt. Ignoring the debt can result in a creditor taking you to court to get a judgment. A judgment is a court order stating that you must pay the amount owed. It gives the creditor the right to garnish your wages or seize your assets, including your bank accounts.

Some creditors, especially contractors and subcontractors and the IRS, can file a lien on your property. A lien is a court order that gives the creditor an interest in a piece of some real property you own such as your home. When you sell the property, the creditor will be paid what he or she is owed out of the proceeds of the sale. Once a lien has been placed against your property, the only way to eliminate it is to pay or reach a settlement with the creditor. If it is the IRS that filed the lien, be sure to get a Certificate of Release of Federal Tax Lien when you do pay it off.

Eliminating Debt by Negotiating With Your Creditors

Negotiating debt with a creditor is a foreign language to most consumers. In some cases, you won't need to hire or talk to a debt settlement company or lawyer to settle your debt for less than you owe. Debt settlement does leave a bad mark on your credit, but the damage is not nearly as severe to your credit rating as what bankruptcy on your reports would be. Debt settlement can only stay on your reports for a maximum of seven years. Bankruptcy can stay up to 10 years.

Creditors will generally report a debt settlement as "Settled" or "Paid in Full for Less than Full Balance" on your credit report. But, you could end up getting that completely removed from your credit report after a while because the creditor does not HAVE to leave it there for the full seven years. The seven years is the maximum amount of time that derogatory information is allowed to stay. If the creditor or collector chooses to have the item removed before the seven years is up, they can legally do that.

If you're in a situation where the creditor won't negotiate with you, it may be time to seek professional advice. "Most creditors have heard every sad story in the book and are forced to be pretty hard-hearted," says Mike Whitten, senior counselor at the nonprofit Consumer Credit Counseling Service of Mid-Oregon in Eugene. "Having an impartial third party negotiate for you often gets results. Sometimes creditors will lower the interest rate on a loan just to show support for the debtor and to assure that payments are on time."