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Credit card companies want you to eliminate credit card debt without bankruptcy because, if you declare bankruptcy, they do not receive any payments. It is in the best interest of you and your lender to negotiate a different solution. Eliminating debt the right way can save your credit and reduce financial stress.
1. Take a Debt Inventory
Before entering any debt elimination program, you need to understand how much debt you really have. Your total debt include your mortgage, car payments, installment loans on appliances or electronics, tax liabilities, student loans and all credit card debt. Create a reference sheet for yourself that presents an accurate liability statement. On the sheet, include initial principal, remaining debt and current interest rates.
2. Take an Asset Inventory
You also need to determine how much you own outright. If you qualify for bankruptcy at this point based on your low asset sheet and income, then debt negotiation may not be right for you. Those meeting the requirements for Chapter 7 bankruptcy, or liquidation, may particularly be best-served by that process. Those meeting requirements for Chapter 11, though, may consider debt settlement as a better option.
3. Determine Your Ability to Pay
Based on your debts, assets and income, determine how much you can realistically afford to pay. In order to enter debt-settlement, you will need to have a lump sum payment. If you do not have any cash on hand, consider debt consolidation and/or refinancing. In this option, you will need to have a target date in mind for when you would like to repay all your loans. The target date should be realistic given your current debt load and ability to pay. For example, imagine you would like to be debt free in five years, have $25,000 worth of debt, and can only pay $300 per month. You will need to first negotiate the debt down to about $15-18,000. Next, you will need to locate a lender to provide that amount at an interest rate that keeps your monthly payments below $300.
4. Negotiate with the Credit Card Company
Prepare a proposal for your credit card company which states how you would like to settle. If you are offering a lump-sum payment, state exactly when you can provide this payment by. Give your terms and an explanation for why you are seeking refinancing or consolidation if you are pursuing this option. You may want to prepare references such as statements from your employer, mortgage lender or bank. This will show the credit card company you are not likely to flee or default on payments. You will also want to ensure there is an appropriate contract written with the terms you agreed on before walking away from the negotiation table.
5. Contact a Debt Negotiation Company
Debt negotiation companies can often locate better deals with lenders than you can alone. However, in recent years many of these companies have been exposed for bad lending practices. If you are working with a debt negotiation company, make sure you know who you are dealing with. The company should be rated by a major ratings agency. You should be able to locate reviews online from other consumers who have used their services. Your bank, accountant or lawyer may be able to recommend a company for you.
How to Eliminate Credit Card Debt Without Bankruptcy
