Credit Card Collection Agencies and Negotiating Settlements

January 10th, 2010 | Posted in Credit Card Debt

Due to the difficult financial climate we live in, collection agencies which collect credit card debt have become busier. This is due mainly because it has become harder and harder for people to make their payments.

One missed payment alone can cause havoc with your credit card. Let’s say that you miss a payment and then are assessed a fee. This fee may mean that you now have exceeded your credit limit. Having exceeded your credit limit, you are charged a penalty. You may now be $100 over your credit limit and you haven’t even paid your monthly minimum payment yet.

When this happens, it is wise to call your credit card provider and explain your circumstances. If you explain your situation, your credit card provider may be willing to work with you to get your account back on track. It is better to work things out at this stage than to ignore the situation and end up working with a credit card collection agency.

If you do not work with your credit card provider to reach an agreement, it may decide to sell your debt to a credit card collection agency. Typically, credit card collection agencies purchase debt for cents on the dollar, which is a fraction of what you actually owe. The collection agency will want to collect as much as possible from you in order to increase its profits. In order to obtain as much as possible from you, collection agencies may be nasty and may even threaten a law suit if you do not pay.

However, launching a court case is costly and time-consuming so most collection agencies would prefer to make arrangements with you for payment of the debt. If you can swing it, make an offer to the collection company to settle the debt in full and negotiate a reduced amount. If you decide to do this, make sure that all negotiations are in writing, keep copies of all correspondence to and from the credit card collection agency, and send all correspondence via certified mail, return receipt requested.

Typically, it is a good idea to begin the negotiation somewhere around 25% of the original balance. Though this sounds low, remember that the collection company probably purchased your entire debt at only about 10% of the original amount. It is likely that the collection company will decline this offer and will issue a counteroffer, which you then should counter as well. This will continue until you either come to an agreement or the negotiations discontinue.

If no agreement is reached, the credit card collection agency may lose the momentum for collecting your debt. It may determine that collecting a smaller amount is better than nothing at all. It may also decide that selling the debt to another credit card collection agency is a better idea. If this happens, the process will begin yet again and run its course.

At any point in this drawn out process, a court action could be filed against you. From beginning to end, your credit score will suffer tremendously; however, a court judgment will send your credit score into a downward spiral.

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