Shopping, vacations and dinners out can result in ever increasing debts on your credit cards. Young adults often rack up big bills because they believe they can handle payments. What many people do not consider is that circumstances can arise that can limit the ability to pay. Jobs may be lost, injuries or illness can arise or emergencies happen, such as vehicle breakdowns. Money originally scheduled to make credit card payments might have to be diverted elsewhere. Sometimes only forgiveness of debt can save you from a catastrophic credit score, or even bankruptcy.
Single Card Debt
Contact the company with whom you have a credit card as soon as you know you are in trouble. If, say, you are behind two months on your payments, the creditor might agreed to a forbearance in which you will owe nothing for a couple of months so that you can save up and resume on time payments after the agreed upon period.
Seek forgiveness of the debt if a forbearance period will not aid you. Write a hardship letter to the creditor explaining the reasons why you are unable to pay what you owe. For instance, if you lose your job and have been unable to find employment following your termination, you will likely not have money to pay on the debt. Most debtors will not agree to forgive the entire debt but many are often willing to settle for less than a full payment.
Offer to settle the debt for an amount less than you owe. For example, if you owe $10,000 but have only $4,000 in the bank, ask the debtor if he will take the four grand in full to wipe the slate clean. This is a sizable reduction in amount, but often a creditor will take less than half of what is owed on a debt significantly past due rather than attempt to collect small amounts over many years.
Record the name of the person you talked with regarding forgiveness of full or partial debt. Write down the date, what was discussed and the agreement reached. Ask the creditor to put the arrangement in writing in which both parties sign. Keep the paperwork regarding the debt, payments, forgiveness and all other details in a secure place.
Multiple Card Debts
Gather the information regarding all the credit cards you have including those you are currently behind on in payments. Look at the oldest debts and the ones which are the greatest in amounts owed. These will likely need to be dealt with prior to the newer accounts and those credit card debts whose amounts are not as high.
Decide how you want to negotiate or debt forgiveness with the companies. Owing to more than one creditor can make for complicated circumstances in which you will need the aid of professionals. You can initiate contact with each credit card company on your own but if you do not receive the forgiveness of debt needed, consider debt management companies which might be able to assist you.
Check out the validity of any debt management company prior to making contact with them directly. Do this by calling your state's Attorney General or your local consumer protection agency. Most of the companies who do this type of business are "for profit" so if you consider using them, you need to make sure they are legitimate businesses and not scammers.
Research the debt management companies which checked out through the State Attorney or protection agency. Call each of these to gain information. Compare the programs each of them offer. Consider the fees involved, the type of settlement they wish to set up, how successful they are in getting creditors to forgive debt or obtain partial forgiveness. Carefully, review all contracts before you sign up with any debt management agency.
Be cautious regarding debt management agencies which ask you to quit making payments directly to original creditors as this could result in negative reports to credit agencies.
Tax consequences can result from debt forgiveness. You must report the information to the IRS if the amount forgiven is over $600.
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