Credit Card Debt Settlement

Credit Card Debt Settlement

How to Negotiate A Credit Card Debt Settlement

Have you ever promised to meet a friend for lunch and then found yourself running late and maybe not being able to make it at all?  We’ve all been in a situation where we have made a promise to someone, with the very best of intentions and with no predictions as to what the future may hold. Then, something happens – traffic, you get called into work or maybe even something more tragic.  You had no idea it would happen and you had definitely committed to the lunch date and now you’re in an unfortunate situation.  What do you do?  Most of us would agree you need to contact your friend and let her/him know that you’re running late or can’t make it and see if you can reschedule.  We would also agree that the best time to let your friend know you’re running late is before the actual lunch date.

A Promise is a Promise

It’s really the same concept with your creditors.  You had made a promise to pay your creditors back and that promise was made without any predictions about the future.  Fast forward and maybe now your circumstances have changed – you or your partner have been laid off or someone in the family ends up with a critical illness, the treatment for which wipes out your savings.  Just like you would contact your friend if you were running late for lunch, you can definitely contact your creditors if you’re running late in paying them back.  

Timing is Key

If we stick with our lunch analogy, you can imagine that your friend would be livid if you were an hour late and then call to tell them what’s going on vs if you called 10 minutes prior to your agreed upon time.  It’s the same with credit card companies, they will be more likely to work with you if you call just before the due date of your payment or just shortly after vs 3 months later.  You will have more options if you are proactive too and the credit card lender will be more likely to want to help you.  You could negotiate no interest for a period of time, a lump sum settlement, or lower payments over a longer time period or come up with another custom solution.  If you are being proactive, you will have more options.  You could even try to negotiate debt settlement on your own by offering to pay a percent of the total debt rather than the entire balance and interest.  When you are not late yet or not too far behind on your payments, you have more negotiating power.

Damaged Relationship

It can feel daunting to contact the credit card company especially when you’re already late and don’t see any hope of catching up.  There is a lot of unnecessary stigma and shame that we put on ourselves around money and debt.  We are human and things happen.  The Canadian statistic for households in debt has steadily stayed at around 50% and yet we can feel isolated and like we are the only ones who can’t stay on top of our debts.  That is simply not true. 

If we avoid the credit card bills and having a candid conversation with the lenders before being late on our payments, we damage the relationship and our credit score too.  Lenders can send letters of demand, make threatening phone calls, transfer the account to a collection agency or sue you when you are late on your payments and have not communicated with the lender.

Credit Card Debt Settlement Tips

  1. Try to settle your credit card debt directly with the lender first.  Even if you are a bit late on your payments, always start directly with your lender.  Explain your situation and let them know you are wanting to work something out – just like you would with your friend for your lunch date.  Be genuine, respectful and be sure you know your numbers.
  2. Rework your budget. See if you can reduce your expenses somewhere so you can get caught up on your credit card payments.  Perhaps you can increase income with a side hustle or a second job so you can apply that income to paying down your debt.
  3. If you are unable to create the cashflow to pay off your debts and make your own debt settlement directly with the credit card lender, it’s time to call in some reinforcements.  Reach out to a Licensed Insolvency Trustee for a free consultation  to see if a formal restructuring program is the best option.

Formal Restructuring

If you are unable to negotiate a satisfactory settlement directly with your unsecured lenders, it may be time to look at formal restructuring.  There are two federally regulated and legally binding formal restructuring programs in Canada: Consumer Proposals and Bankruptcies. Both options are only available through a Licensed Insolvency Trustee firm.  A formal restructuring forces your creditors into a settlement and the stay of proceedings protects you from creditor actions like phone calls, judgements and demand letters. 

What is a Consumer Proposal?

Many people have heard of Bankruptcy, but most people do not know the alternative to it which is Consumer Proposal.  A Consumer Proposal allows you to pay back only a per cent of what you owe with no interest.  Consumer Proposals in Canada can only be administered by Licensed Insolvency Trustees like Bromwich+Smith, who negotiate with your creditors based on your budget. When you sign your Consumer Proposal creditors are legally bound not to contact you and seize collection activities. Some benefits of a consumer proposal is that you can roll all your debt into one payment, zero interest, your payment never changes (even if you income goes up) and you can keep your assets (provided you can continue to make payments).  The term of this program is typically 5 years and it affects credit as an R7. 

What is a Bankruptcy?

Bankruptcy  is the last resort but not the end of the world.  In some cases, declaring bankruptcy can be the best option to eliminate debt and allow you to start over with a clean slate. A Bankruptcy can only be administered by a Licensed Insolvency Trustee like Bromwich+Smith, once signed, it affords you legal protection from your creditors which means peace of mind for you.  A first time Bankruptcy is usually discharged in 9 months and affects your credit as an R9. Something to consider in this option is you will likely have to sell your assets (some exemptions apply). 

Licenced Insolvency Trustees, Bromwich+Smith have debt relief specialists available to offer debt advice and debt restructuring entirely from the comfort of your own home. Now offering video appointments with clients, Bromwich+Smith’s Debt Relief Specialists are available for initial free, no obligation, confidential consultation by phone at 1-855-884-9243 or request a call back at contact us page.

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