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Between the high interest rates and extra fees that credit cards come with, it can be remarkably easy to find yourself facing issues with credit card debt. After all, if you’re carrying a credit card balance (or two) from month to month, just one minor hardship, whether it’s a job loss, medical issue or emergency home repair, can lead to serious debt issues that are hard to overcome.
And, the reality is that anyone can get in over their head with credit card debt in today’s high interest rate environment, even without the extra hardships. That’s because, following a series of Federal Reserve rate hikes, credit card rates are now hovering above 21% on average. And, with credit card interest rates that high, all it takes is a few months of a high balance for the interest charges to compound, making it tough to pay off what you owe.
If you’re currently grappling with unmanageable credit card balances, one potential solution is to try negotiating with your creditors for debt settlement, also known as debt forgiveness. When you opt for credit card debt forgiveness, you negotiate with your creditors, either through a debt relief company or on your own, to settle your debts for less than the full amount owed. But while debt settlement can be a lifeline for borrowers who are in financial trouble, there are some things you should avoid if you’re trying to take this route.
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6 things to avoid if looking for credit card debt forgiveness
If you want to settle your credit card debt for less than what you owe, take note of the following:
Don’t add new debt to the mix
The first and most crucial thing to avoid when looking for credit card debt forgiveness is taking on new debt. If you want to settle your credit card debt, stop using all of your credit cards entirely. Even a single new charge can derail your efforts in the creditors’ eyes. They need to see that the cycle of creating new debt has been broken before they’ll consider decreasing or writing off your existing balances. The temptation to use your cards will be there when cash is tight, but using credit will signal that you can’t control your spending habits.
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Don’t misrepresent your financial situation
When pursuing debt settlement, you’ll need to demonstrate a true inability to pay your full credit card balances over time through your current income. So, don’t lie or fudge the numbers on your income, assets and expenses to try and qualify. If you’re working with a debt settlement company, provide them with complete access to all your income sources, debts, expenses and assets right from the start instead. Any omissions you make early in the process could later be grounds for your creditors to claim you attempted fraud and reject settlements.
Don’t cherry pick accounts
When you have credit card debt across multiple cards, avoid the temptation to try and settle one account at a time in a piecemeal approach to debt forgiveness. The debt relief company and your creditors will want total transparency into your overall unsecured debt exposure across all credit cards and accounts. Present them with a complete accounting of what you owe and stick to negotiating it all together rather than leaving certain accounts out.
Don’t take out new loans to pay off debts
You might think it makes sense to consolidate your credit card balances onto a new debt consolidation loan. However, in the creditors’ eyes, this simply represents exchanging one debt for another, and loan obligations are viewed differently than credit card balances when it comes to debt settlement. And, by paying off plastic with another form of debt, you greatly reduce your odds of getting the credit card companies to agree to a reduced payoff.
Don’t use other assets to pay off debts
Using funds from retirement accounts, home equity loans or other assets to pay off credit card debt will also show creditors that you have a remaining ability to pay that disqualifies you from settlement. In turn, any path to pay the full debts from other means can torpedo the debt forgiveness opportunity.
Don’t give up too early
The debt settlement process can be tedious and slow-moving. It can often take meticulous budgeting, document submission and back-and-forth negotiation before your creditors approve a settlement. You’ll need perseverance and stamina throughout all the hoops you’re made to jump through. So, don’t get discouraged and give up halfway through, or you’ll have wasted all your efforts only to remain stuck at the beginning.
The bottom line
While you have the option to try and negotiate credit card debt settlement on your own, it can be difficult to do. Most people are better off hiring a reputable debt settlement firm that has established negotiating processes to go to bat on their behalf. Either way, though, following the strict rules and requirements is mandatory if you want any chance at qualifying for a drastically reduced debt burden.
Angelica Leicht is senior editor for Managing Your Money, where she writes and edits articles on a range of personal finance topics. Angelica previously held editing roles at The Simple Dollar, Interest, HousingWire and other financial publications.
