I am unable to make my minimum credit card payment. Before signing up for a debt settlement program, should I?
There are many different reasons why you want to consider enrolling in a debt settlement program. You are already on a debt management program and seeing no progress.You are unable to make the minimum monthly payment but your income makes you do not qualify for bankruptcy. Or you may have some home equity that you can use to get out of debt. A debt negotiation plan, however, can be very risky and can have a negative impact on your credit rating. If your creditors never agree to settle, for example, you cannot pay your reduced debt amount in full, you will end up with bad credit. For this reason most companies provide credit repair services to fix damaged credit caused by the debt settlement plan. So, you will need to evaluate your options before considering signing up for a debt settlement plan. But as your initial step talking to your bank is a good move. If you do contacting your bank you will be able to learn how they look at you as a debtor and how they will react if you don’t pay
Hopefully, you are aware that any debt settlement program will negatively impact your credit rating. What typically happens is that the consumer credit counseling agency will contact the bank and act as your mediator. They will tell the bank that you are unable to pay the full amount of the debt owed as you promised to do, and that they want to set up an alternative arrangement—which usually involves paying off the principal amount that you owe but not the interest charges over an extended period of time. The bank may or may not choose to accept this arrangement. It depends on how their loss recovery operations are set up and the size of the debt. Two things are likely to happen. If the bank accepts the debt settlement arrangement they will close your credit card account and report it to the credit bureaus as a bank initiated closure. Your credit rating will drop as soon as this happens. Even though the account is closed, the outstanding balance that you owe will still show up on you
You can always call and ask to see if they have any special programs given the state of the economy today. If they don’t: Contact your local Red Cross for a referral to the local Consumer Credit Counseling Services (CCCS) in your area. They can negotiate much lower payments and interest rates. They DO NOT negotiate settlements. They will require you to stop using all credit and to cut up your cards. Your credit report will be updated to “enrolled in debt management.” This does not damage your credit, but it may make it impossible to obtain new credit while you are enrolled in their program….so don’t use this service if you anticipate applying for a new apartment, car loan or mortgage anytime soon, as you would probably be denied while you’re enrolled in the CCCS debt management program…. Otherwise, it can be a very good way to deal with your debt. Please note that CCCS cannot perform miracles in situations where there is an overwhelming level of debt relative to your income/assets.
Stay away from debt settlement companies. Typically they take your money and let all your accounts go 90 days past due. Then offer lowball settlements under threat you will file bankrutpcy. Not only will this trash your credit, most credit card companies refuse to play and will immediately file lawsuit. The settlement company won’t be helping with the lawsuit. Consider credit counseling (which is completely different than a settlement company). Check here for a NFCC member near your: http://www.nfcc.org/. These are legit, non-profit companies who offer debt management programs for a nominal fee. They don’t settle your debts for less. They negotiate lower interest rates and payments to allow you to pay off your debts. While in the program, it is noted on your credit file. However, upon completion,the notation is removed and you will have decent credit. You might be able to get the credit card company to work with you if you have a tempo
