Settling with Credit Card Companies

If you are in a debt management program and your counselor is recommending that he or she negotiate with your creditors for a debt settlement on your behalf, you may be wondering why a creditor would ever agree to this. Naturally, creditors prefer to receive the full amount that is due to them, but there are certain circumstances when settling with credit card companies is possible.

When Debt Settlement is the Best Option for Creditors

If a consumer has missed several consecutive payments on an account, the creditor is faced with the expense of collection efforts, whether that be in-house or hiring a third-party collection agency. The further behind the account is, the more expensive it gets for the creditor to attempt to collect on it. Eventually, creditors give up and write off the account as a bad debt. This options leaves them with no money to show for all of their collection efforts.

Another option creditors have is to sell your bad debt to a junk debt buyer, which is an organization that purchases large portfolios of bad debt with the intention of aggressively pursuing collection. The payoff for the junk debt buyer can be favorable if they end up collecting anything. However, creditors can usually only get about 10 percent of the debt's value when they sell it. This is another case where settling with a credit card company would benefit both parties significantly.

By contrast, agreeing to accept a partial payment from a customer who is severely delinquent allows the creditor to recoup at least some of their expenses and their original investment of financing the customer's credit account. For the consumer, the only other option is to file bankruptcy, and the creditor ends up with nothing if that happens (usually). In the case of extremely delinquent accounts, from the creditor's point of view collecting something is better than collecting nothing.

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