We all use credit cards and we probably all spend a bit more than we really ought to, but when finances are tight it is really easy to slip gradually into fairly serious debt. It gets to a point where it becomes a vicious circle as your card bills rise, leaving you less and less each month, leading to even more reliance on credit cards. The end result for a great many people is a mountain of debt to many different card companies, with no apparent way of ever getting enough money to pay it all back.
So you wonder what to do and look around at possible solutions. Too many people end up trying to solve their debt in ways that simply push the problem further down the line. Taking out new cards to pay off the old ones for example or getting a debt consolidation loan to pay off all the cards. The problem here is that you are not actually getting rid of any of your debt, just transferring it somewhere else.
When your credit card debt has built up to a really serious amount, as it does for many of us, you need to find a solution that will actually lead to the card companies being satisfied and leaving you alone. If your monthly payments are far more than you can afford, then your solution has to involve negotiating new terms to settle the debts. This can range from freezing interest charges and agreeing smaller payments, to agreeing to write off a proportion of the debt in exchange for a lump sum payment.
The solution you end up with will depend on many factors, but you essentially have three choices. You can either try to negotiate with the card companies yourself, use a debt management company to set up a payment plan (Debt Management Plan), or use a debt settlement company to reach a negotiated settlement with your credit card companies.
Anyone who has tried negotiating with a credit card company will know how tough this can be, and it is not for everyone. However, if you are able to do it well, you can maximise the benefits of any reductions you manage to achieve. The process is made harder if you do not understand the way card companies work and the systems they use when dealing with unpaid debts. An inside knowledge can mean the difference between getting agreement to write off 60% of the debt or being sued instead.
The debt management approach is to use debt negotiators to agree new terms with your creditors, which allow you to just make one affordable monthly payment instead of all your previous debts. The process does not involve writing off any of your debt, but usually does mean freezing or reducing interest charges or late payment fees.
Using a debt settlement company to negotiate credit card settlement means that experienced negotiators work on your behalf to agree new deals with the credit card companies to settle your debts. This often, but not always, means that the debt is drastically reduced in exchange for a lump sum payment. As you are unlikely to have a lump sum to settle with, you just keep paying a regular monthly amount into a separate account, which builds up and is used towards the settlement payments.
While debt settlement companies are common in the US, it is not a widespread practice in the UK, because there is a better alternative, called an IVA. This is an Individual Voluntary Arrangement, and, like debt settlement, usually involves writing off a good proportion of your debt.
If you would like to negotiate settlements on your own, there is help and advice available on how to do this. If you wish to use a debt management or debt settlement company to help you, there are a few things to bear in mind when deciding which ones to approach. You may hear stories about debt settlement being a rip-off or a scam. The fact is that debt settlement is not a scam, but some companies have used it to take advantage of people in debt, giving it a bad name.
As well as not wanting someone who is trying to rip you off, neither do you want someone who just isn’t very good at debt settlement negotiation. You therefore need to take care to use only reputable companies. Check that they are well established and have a track record of successfully negotiating credit card settlement for many other people. You should also approach two or three companies in order to compare what they can offer you. Most have a website with a very simple online form to start the ball rolling.