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Can You Really Settle Your Credit Card Debt?

Can You Really Settle Your Credit Card Debt?

Despite promises from companies, you'll have better luck doing it yourself

June 27th, 2012 by Mark Huffman of ConsumerAffairs in News

There are a lot of companies and law firms that say they can settle your credit card debt, but can they really? The consumers were hear from say these services are costly and many are not very effective.

Hyun, of LaHabra, Calif., said he made a mistake when he hired a debt-settlement law firm to reduce his credit card balance.

"I lost my time and my credit score," Hyun wrote in a ConsumerAffairs post.

A couple of years ago Hyun hired a firm to settle his debt and ended up paying around $8,000. After the payment, Hyun said he was told it would cost even more.

"It was a 30-month program I believed to be $250, never mention about I have to pay more other than the 30 months of $250 and before that time everything will be done," he wrote. "In addition to losing that much money, I also realize waiting that much times to pay off each creditor, other cards will increase in balance of late fees and non payment such.

Do it yourself

So Hyun said he ended up calling the credit card companies himself.

"The whole process with the law group took me three years or more, but it could be done in less than a year working with the creditor directly," Hyun said. "What angered me the most is, like myself and others who are in this situation, I was so desperate and they took advantage of that."

While consumers shouldn't fall for every slick promise of credit card debt settlement, they should also understand that it might not be that easy to settle their credit card debt the way Hyun did it. After all, there are a lot of people in his situation.

Debt settlement experts say credit card companies are still willing to make accommodations with their distressed customers, but you have to have a good reason why you are unable to pay off your debt. Debt settlement is mostly reserved these days for consumers in an extreme hardship situation.

Still, credit card companies increasingly say they would prefer to deal with the consumer directly and not a third-party who is going to take a cut.

Time is money

The sooner you contact the credit card company about negotiating the settlement, the better. Late fees and interest will quickly increase the balances. Be ready for a full and frank discussion of your income and finances.

Asking a credit card company for a settlement will not negatively affect your credit score. However, if you are successful in reaching a settlement, keep in mind your credit score will take a hit. But for many people still struggling against a crushing debt load, it may well be worth it.