Credit Card and Debt Settlement? Would you Consider it? (Your Chance to Win $10!)

By Linsey Knerl on 23 June 2009 (Updated 18 August 2011) 43 comments
Photo: Jason Rogers

It’s time for our weekly trivia question: What do you think of credit card and debt settlement?  Would you consider it?  Have you ever done it?

Awhile back I interviewed Kim McGrigg, of Money Management International.  She explained the difference between traditional credit counseling programs and debt settlement.  With many ads on TV and the internet claiming to cut your debt by 50%, debt settlement may seem like a tempting alternative for consumers looking to escape mounting debt.  Kim had quite a bit of information on some of the hoops, fees, and long-term effects of having your debt written off for less than what's owed, and we'd like to hear what you think!

Do you have a story to tell about debt settlement?  Did you go through a company or did you attempt to do it on your own?  Were there any negative consequences?  Your comment could win you a $10 prize!

 Those of you who aren’t familiar with the “drill,” read below for full details:

Win a $10 Amazon Gift Certificate

We're doing two giveaways -- one $10 Amazon gift certificate for a random comment, and another one for a random tweet.

How to Enter:

  1. Post your answer in the comments below, or
  2. Tweet your answer.  Include "@wisebread" in your tweet so we'll see it and count it.

If you're inspired to write a whole blog post, please link to it in the comments or tweet it.

At the end of the drawing, we'll update this post to include (and link to) all of your helpful responses.

Giveaway Rules:

  • Contest ends Wednesday, June 24th at 7:59pm CST. Winners will be announced June 25th between 8:00 – 9:00 pm CST during our live Blog Talk Radio broadcast, and will be contacted at the conclusion of the broadcast (or you can call in live to claim your prize!)
  • You can enter both drawings -- once by leaving a comment and once by tweeting.
  • Only tweets with "@wisebread" will be entered. (Otherwise, we won't see it.)

 Good luck!

 

 

***We have our winners!  Congrats to these winning entries!  (Your prize is on the way!)

  @ladytr0uble No, it is not an option for me. I promised myself a long time ago that I will only buy what I can afford

 

Comment #2 -I tried both ways, but when ... Submitted by Ana

I tried both ways, but when I read the fine print on the settlement company I noticed it was not a good idea. I am doing it on my own little by little and feel more accomplished.
0
No votes yet
Your rating: None
ShareThis

comments

43 discussions

Add New Comment

CAPTCHA
This test helps prevent automated spam submissions.
Guest's picture

I guess credit card and debt settlement is a better option than bankruptcy, but I still wouldn't do either. If I spent the money, then I would feel obligated to pay it back.

Guest's picture
Ana

I tried both ways, but when I read the fine print on the settlement company I noticed it was not a good idea. I am doing it on my own little by little and feel more accomplished.

Guest's picture
sbm

No = lately I've only heard bad things about it.

Guest's picture
Guest

If I spent the money, it's my responsibility to pay it back.

Guest's picture
Laura

No way - it seems too shady for me. Not to mention, it seems like an avoidance of responsibility.

Guest's picture
Guest

Have tried it and found out it is better to do it on your own. It was costing me $20.00 a month, now I just put the money towards the credit card bill.

Guest's picture

I think much more to your advantage to use a debt settlement company rather than trying to do it yourself. You can get results doing it both ways, but why not let a professional handle it. Debt settlement companies have been there done that before and now what their doing. Their providing a service so there is a fee but that's more than made up for by the extra money they can save you.

I compare it to representing yourself at a criminal trial. As they say "Any one who represents himself, has a fool for a client"

Guest's picture
Leah

Transaction costs for debt settlement can often eat up the "savings" you think you have off your debt. These guys aren't offering to help you for free! Plus, you're involving a third party into the debt relationship. Own up, pay what you owe, and if that's not possible, work it out directly with the company or file for bankruptcy.

Guest's picture
kimberly

I don't have any problem with the idea of it. I think if I felt like I needed to I would evaluate it along with other options.

Guest's picture

I have not done it but recommend it to clients as a possible alternative. In her new book "Suze Orman's 2009 Action Plan" Suze notes that to qualify for settlement you need to be very behind on payments and have enough cash to immediately pay the reduced balance.

Guest's picture
Amy

I would feel much better about paying it all back rather than settling, but wouldn't rule it out.

Guest's picture
Grim Reaper

I thought about it last year but went in another direction. I decided to refinance my house and pay them off fully. Mainly because the other way would have been pretty damn close to being treated as a bankruptcy and didn't want to wait 7 years to have good credit again.

Guest's picture
Lorrey

I work in the credit industry and I feel that debt settlement with credit card companies is not a good idea. Most companies will accept a settlement on your debt but will list the remaining amount as a charge off on your credit report. If you are going to do anything, it should be with a company like Consumer Credit Counseling Service who will work with you and your credit card companies to pay down your debt. They have ways to freeze your accounts and some will even stop charging interest. It also protects you from tons of calls from bill collectors as once you notify your creditor that you are working with CCCS, they, by law, have to stop calling you....unless you miss a payment.

Guest's picture
Emily

It's always good to have options, but the way to have the most options is to not get into debt in the first place. I would recommend looking for help long before credit card and debt settlement come into play.

Guest's picture
Tyler

I've never actually been in debt, credit card or otherwise. It just isn't something I'm comfortable with, especially for consumer goods. I think I'd only ever be willing to go into debt to increase my assets, not just to have cool things. "Settlement" to me seems like a way of giving up after getting in too deep. That's not a position I want to find myself in ever.

Guest's picture
Guest

Debt settlement is generally an ongoing symptom IMO. People want stuff that they can't afford and can't wait to save up for, so they buy it on credit. Then, when they get in credit trouble, they can't wait and can't work through the debt, so they want a quick solution.

Here's a thought: Don't buy stuff you can't afford. If you do, pay the bill rather than looking for a way out.

Now, I know some people are hit by the horrible and the unexpected, like the sudden loss of a spouse in a car accident, etc. that could account for debt and the inability to pay in a reasonable fashion. In such circumstances, it may be the more honorable thing to offer to settle than to bankrupt on the debtors. However, I'd venture a wild guess that this accounts for less than 2% of all settlement attempts.

Guest's picture
Brian

I don't really know enough about it since I'm not in a position to need it, but it seems better than bankruptcy. I would just be worried about the fees.

Guest's picture

I've never had credit card debt beyond what I couldn't pay each month so I'm not in a position to speak from experience, but I do have a distrust of all companies that claim to be able to get rid of or lower your debt. It just seems too good to be true.

As another commenter and Jane Austen (in the novel Persuasion) says, "...for after all, the person who has contracted debts must pay them."

Guest's picture
Paul

I settled a debt with Providian in 2000. I disputed a charge from Providian. I foolishly refused to make any payments while I disputed the charge. They had offered me a way to increase my credit limit if I signed up for a travel package offer. They told me it was an annual charge, but they charged me the $200 3 months later when the annual fee for the card came due. I had over limit fees and the 2 charges for $200 that totaled $700. I owed just under $500 in charges so my total was over $1200. They jacked my interest rate up to 29% and I was getting hammered.

I ended up calling and talking to a "manager" and explained that I was about to declare bankruptcy. I offered them $400.00 to settle the account. They said OK. I had them Fax the settlement to Kinko's and I sent a money order through the USPS with return receipt requested and a signature. They took the money, and I ended up not declaring bankruptcy.

My advice: Do not sign up for any recurring charge over the phone unless you have the literature to read beforehand. If they send paperwork and give you 30 days to cancel, follow through. (I do not agree before reading, because I usually just file the paperwork away and forget to read and cancel)

Guest's picture

I pay off my credit card balance every month. (I think of it more as a debit card with benefits.)

Guest's picture
KelR1

A few years back I visited Consumer Credit Counseling Services to see if debt consolidation would be a good option for me. At the time I wasn't making much money and was just making the minimum payments on all my CCs. Turns out I wasn't behind on payments or in dire enough straits for it. I've since paid off all my CC debt on my own, and it's a great feeling of accomplishment. I don't think I'd ever do debt settlement even if I "needed" it in the future.

Guest's picture

I very foolish allowed the loan officers at school to talk me into student loans. They honestly made it seem like the payments would be nothing hardly at all. Now I have payments equal to my montly rent. I wish I had known to research it better. I am not sure that student loans even qualify for debt settlement and I know I don't have the money to pay it off immediately so even if it did I wouldn't use it.

Guest's picture
Guest

there's a new program starting July 1st that will allow you to pay your student loans on an income scale. (mostly because they extend your terms to 25 years from 10)

I'd check it out with your lenders

Guest's picture
Guest

I am worried people will focus on the "lower payments" rather than on the rules, fees, and other requirements associated with debt settlement.

Guest's picture
Guest

Yes, I think it's a great idea to settle your debt with the credit card companies. With so many people heading toward bankruptcy, the companies would much rather have a few cents on the dollar, than nothing on the dollar.

Sure, you spent the money. But, you were charged interest on that, weren't you? And credit card companies have NO problem jacking up your rate when they feel like it, or even upping or lowering your balance at will. Even if you've NEVER missed a payment, they can do what they pretty much like with your account.

Hopefully with the new legislation, alot of that will change.

Guest's picture
NCN

We do not use credit cards. Instead, we pay cash for most purchases, and occasionally use our debit cards. I feel, if you borrow money, you have an obligation to pay it back. Of course, credit card companies have an obligation to be honest and forthright, and upfront about their policies and procedures. In the end, even if you settle, someone will end up paying for the cost of your loan. As a result, the cost will be passed on, to other customers, through increased rates and fees.

Guest's picture
FMF

My personal belief is that if you borrowed something from someone, you owe it back to them. That's it. No trying to get out of paying part of it and calling it good.

I have never had to deal with a creditor for my own personal finances, but I have counseled many couples (probably 30 or so over the years) on how to deal with them. In some cases, I've even been given permission to work with the creditor to negotiate on behalf of the couple. Here's what I've found:

1. Creditors want to reach a workable agreement as much as borrowers do. They want their money back (of course!) and they are often willing to be flexible (take a longer time to re-pay, suspend payments for a time, lower the interest rate, etc.) as long as they know the borrower is sincere and committed to re-paying.

2. Borrowers generally have a lot more money to free up for debt repayment than they think. Give me 30 minutes with someone's budget and I guarantee I can find money they don't need to spend and can allocate to paying debt instead.

3. At the first sign of debt trouble, the borrower should contact the lender. This gives them both time to find a workable solution. Most borrowers wait until they are several months behind on payments and then contact the lender. By this time, the lender sees the borrower as a "deadbeat". In my way of doing things, they see the borrower as an honest, proactive person trying to fulfill their commitments.

All this said, this economy is different than any other I've seen, and creditors may be tougher than before. Still, I think these principles will work for most people in most circumstances.

Guest's picture
Susan

If you're going to spend money, you should be responsible for paying it back. I've always worked whatever number of jobs I needed to pay off my expenses each month. I never keep a balance on a credit card. As a result, I've never been in a position to look into any sort of debt management. There are times when I could see it might be needed, such as an unforeseen medical expense.

Guest's picture
Annie G

It saddens me that empathy seems to be a thing of the past nowadays. Since I have not walked in their shoes, I would never judge whether someone's debt is their own fault or due to circumstances beyond their control.

Of course, I do all I can to not have debt (except that pesky mortgage), but life has thrown me curve balls in the past, and may certainly do so in the future, so I'll avoid the better-than-thou prideful attitude.

If the circumstance came up, I would likely try to work with settling my debt myself, because I often negotiate with companies on prices and fees. If I did select a lawyer or firm to settle my debt, I would be awfully careful to check out their history and talk to former clients. I like to keep a close eye on anyone who has access to my financial info!

Guest's picture
Laura

I've never had to look into it, either, but I guess I'd consider it along with my other options!

Guest's picture
Jen

If you spent the money then you should pay it back. BUT - and this is a huge but - the credit card companies have been increasing their fees, changing terms at will with little notice to the consumer, and charging exorbitant interest fees while reaping huge profits. When someone takes out a loan at, say, 10.99% to pay for something on their credit card the expectation is that if your account remains in good standing and you as a consumer follow the terms of the creditnagreement you will repay that loan at the initial APR of 10.99%. However, credit card companies are significantly increasing interest rates on even good customers' (e.g., those without any missed/late payments) cards making it near impossible for people to budget to pay off their credit cards. An ideal situation IMO would be to reduce the balance so that the the consumer pays for the purchases themselves and the credit card companies eat all of the fees/interest charges that they have tacked onto people's accounts unnecessarily.

Guest's picture
Guest

Due to a lengthy unemployment after my daughter was born, my husband and I found we had gone through our savings and were using our credit cards for basic survival items. During this whole time, we were inundated with credit card offers, one after another. We also managed to make at least the minimum payment.

A few months later, I was ONE DAY late with a payment and my minimum payment jumped to over $5000! I called the company and they would not budge.

We felt that we had no option other then debt settlement. During this time, we dealt with 2 companies. One company was very helpful and allowed us to settle one of our accounts in a very short amount of time.

The other company was a nightmare. I could never get a hold of them. The creditors called our house constantly because the company never told them we were trying to settle the account. They made all kinds of promises, but once they got their fees, they were nowhere to be found.

Looking back now, I really wish I would have taken any other route available. Go to your local CCCS and ask for help. We are now in the process of declaring bankruptcy and at this point literally have no other options. If you do decide to go though debt settlement, please call your local Better Business Bureau and ask who they would suggest. DO YOUR RESEARCH!!!

Guest's picture

Thanks for sharing such great post, according to me we keep the credit cards as an added facility, but sometimes it cost us too much for making payments of the credit card bills. For more details on credit card debt refer http://www.prime-targeting.com/bad-credit-credit-cards-credit-cards-debt...

Guest's picture
Guest

I panicked with my debt and used a debt settlement company. They have done their job, they are legit and my debts left with them (I eventually withdrew two accounts from them and settled them on my own) but it was *FAR* more costly to me both in terms of money spent and damage to my credit. Yeah, they saved me 25%-50% on each debt amount in raw terms, but they also collected heavy fees before they would even begin to collect money for settling the debts, plus they collected a heavy fee from each check sent to them, PLUS they collected from me once they settled each debt. THEN I got the tax forms from the creditors since settled debt is considered income, and is taxed like a bonus -- 40% or so. *PLUS* because it took so long and the settlement company strategy is to simple stop making contact with the creditors once they send a single letter stating my intent to settle, that I had a judgment against me (luckily in my state, wages can't be garnished). I withdrew that account and settled on my own, under fair terms. I'm about to pay that debt off, though I'm still going to get wholloped at tax time.

Some banks are real A-holes and will not work with you until it's really fargone. Really, it's in their best interest since they makes oodles of money from you, but they can't let it go to charge-off or else it's too late for them too. They usually start working with you after 90 days, and are a lot more open closer to 180 days, when the charge-off will happen.

I know a lot of people are rightfully suspect of debt reduction/consolidation agencies that work for the credit card companies, but honestly, it can't be worse than what a settlement company will do. Best thing is to try to work with the companies. They won't listen until it's too late and you miss payments, but it's got to be cheaper for you in the long run and less damaging to your credit.

Please, please, please never work with a settlement company!

Guest's picture
Debra

I agree with you totally regarding not working with a "settlement company."  I settled a credit card bill directly with the issuer and had no problem.  Settlement companies charge hefty fees - it is far better to pay the debt.

Guest's picture
Debra

I opted for debt settlement with one credit card company which was on the up and up.  It worked well - the only drawback is your credit report shows the debt was "settled" but after 7 years it is erased.  There are unscrupulous "settlers".  Now especially I would be very leary of settling a debt.

Guest's picture

There are several debt settlement companies are available for your debt settlement, but you have to find the trusted agency to settle your debt. Gaining some knowledge of settlement program will give you some experience in your financial crisis.

Guest's picture

Debt settlement companies will help the debtors to rectify their problems and will help to decrease the interest. Debt settlement program is really helpful for the one who's looking for the advice of debt settlement.

Guest's picture

Hi Linsey very nice post . i have gone through the all the credit card debt and settlement and it was a very bad experience as I was totally bankrupt..

Guest's picture

Using a professional, reputable debt settlement company can help consumers reduce the amount of money they owe and the length of time it takes to pay off the debt – often dramatically.

Guest's picture

I think working your way down to the smallest to the largest credit card debt is an excellent idea. My husband and I the biggest financial mistake I thought we needed a bigger car and the house to have a baby. It would have been much less stressful the first two years if he had not heard people around us who need these things. Even now, when I talk to people having a third child asks me if Im buying a bigger house. I told them I still do not own one I have.

Guest's picture
Carson

I've done it before, but I'll never do it again. It is better in the long run to just repay it.

Guest's picture
Chris

I have used debt settlement before after looking at other ways to reduce my debts. It worked out great for me because i owed around $80,000 and only had to pay $14'000 of that. My monthly payments where reduced massively and i can now afford to treat my kids. Highly recommend it to anyone with large un-secure debt