In very rare circumstances (like never) creditors agree to help you out of your debt problems because they are nice people. Creditors agree to a plan because they may feel this is their only chance to get money from you. Their thinking is that some money is better than nothing. You can help this impression along by hinting that your only other option is declaring bankruptcy. However, no matter what you may hint or flat out state to them, creditors have their own ways of determining if you are teetering on the brink of bankruptcy.

    What would make you appear as a candidate for bankruptcy?

    >    If you haven’t been making payments on any of a significant portion of your debts, especially credit cards.
    >    If you don’t have anything to lose in a bankruptcy like a home or car.
    >    People who are out of work, or show no probable future increases in pay

    You may think to yourself, “Ok, well, I’m going to tell them that I haven’t been making payments on my other accounts, I’m out of work and I don’t own anything.” Be careful about this, as creditors have usually invested large sums of money on high technology information gathering systems about their clients. In talking to a representative for a major auto-loan company, a piece of software they run obtains the following information may be gathered by just entering in your phone number:

    >    Where you bank
    >    Your credit rating
    >    Your criminal records
    >    Your payment history on all of your accounts
    >    Where you work
    >    How much you make
    >    Whether or not you own a home, a car, boat, etc.

    Where is this software getting this information? From your credit report, from the credit application you originally gave them, public records, motor vehicle division, Social Security Administration, you name it - if records are public, you can bet they are being accessed. Public records not only contain any court records, but also recording of deeds of trust and other property transactions. Are we getting the picture?

    The kind of personal circumstances a creditor does not like to see

    You are current on all of your payments to this creditor and every other one on your credit report

    What if you are an honest person who wants to warn a creditor that you may not be able to make payments in the immediate future because of a job layoff or medical emergency? It’s counter intuitive, but some creditors are only willing to deal with you when there is a significant problem. It’s possible you will get them to work with you if you provide convincing documentation, however this is going to be a tough road. If they see you are in good standing on all of your accounts on your credit report, it’s going to take some pretty fancy talking to convince them this kind of payment history isn’t going to continue.

    You have recent activity (charges and payments) on your account
   
    In one case that I know of, recent charge activity on the account made the creditor insist on 65% of the balance due over a lower 50% settlement amount.

    You offer a very low settlement and want to make payments over an extended period of time

    You’ve got to give somewhere, and most creditors are not going to go for a 30% settlement offer payable over 5 years. They will be wondering what is going to prevent you from missing your payments, and this is just another accounting nightmare. Now, if you are going to make a full payment settlement offer, they might be willing to take a chance on an extended period.
   
    They think they can sue you and recover the money
   
    If they think (know) that you are making big bucks and/or have a lot of assets and they can just take you to court and garnish your wages for less money than making a deal with you, most likely you will be sued. Banks known for skipping collection agencies and going straight to court include Discover and Citibank.

    How much should I offer?

    This is the number one question asked when someone begins the debt negotiation process. How much should I offer to settle the debt?

    Each creditor is different

    Like any other industry, each company in the credit card industry has its own debt settlement policies. You may be able to settle with one company for 30 cents on the dollar with one and 75 cents on the dollar with another, even though the amounts of the debt and the terms of the repayment plan are identical. Don’t get stuck on this point. If a creditor is immovable in their settlement policies, it’s because of internal policies written in stone from the dawn of time. Accept the offer, move on and spend your time on a creditor who is more willing to work with you.

    Lump sum offerings

    Obviously, if you are going to give your creditors cash, they will be much more interested in working with you. You will always get a better deal when offering cash. As a matter of fact, you may not get ANY deal if you offer includes a payment plan.   What if you don’t have any cash? We’ll cover that in a minute.   However, if you have cash, you can usually get 30-50% reductions in the balances of the debt you owe, sometimes even lower. Again, as we stated above, we are in no way guaranteeing this kind of reduction.

    What if the creditor contacts me first and makes an offer?

    Sometimes the creditor may contact you via phone or letter and makes you an offer to settle the amount. When this happens, you can be sure that you can get a better deal than the one offered. If this contact is by phone, listen carefully; get the rep’s name and direct telephone number and the company address to which you will be sending your settlement.

    After you get off the phone, or review the letter, come up with your own offer and the use the sample letter “Counter Offer” in Sample Letters & Forms.

    If you have been getting a series of letters from the credit card company and the offer keeps getting better, you may be wondering at what point you should take it as a viable debt elimination solution. Keep the basic rules in mind – most creditors not go below 30%-50% of the original balance, so if the offer approaches these figures, you should consider accepting one of them. If you do decide to accept the offer, use the sample letters “Acceptance of Written Offer” and “Agreement to settle a debt” sample letters and forms found in Sample Letters & Forms.