Credit Card Debt Settlement Letter - Does It Work?

For some, a credit card debt settlement letter can be a worthwhile option to pursue in the quest to get rid of credit card debt. But what exactly is a debt settlement letter and will it be useful for you?

For starters, let's discuss what a credit card debt settlement letter is all about. As it sounds, it is essentially just a letter that is mailed to your creditor (whether it is a bank or credit card company) requesting that they lower the amount of outstanding debt that you (the debtor) owe. Typically, the debtor will make an offer that they will be willing to pay in full (although it is not unheard of to settle on a monthly payment plan) which is lower than the actual outstanding amount they owe. Often times, the creditor will then make a counter offer somewhere in between the original debt settlement amount and the actual amount owed. Once an agreement is reached, the debtor then pays the negotiated amount in the time frame agreed upon.

This may sound too good to be true so how does it work? Lending institutions such as banks and credit card companies exist for one purpose which is to make money. When they receive credit card debt settlement letters, they see it as an opportunity to collect money which otherwise they may never see. For example, if the debtor goes into bankruptcy, the credit card company will probably never be able to collect the money they are owed. By responding to a debt settlement letter, they are essentially a negotiating credit card debt with the debtor. After all, some money is better than no money at all.

There are some caveats to writing a debt settlement letter that should be mentioned here as well. Many people in significant debt opt to communicate through a credit card attorney rather than directly contacting a creditor. The benefits to this, despite the obvious fees involved, are that the attorneys are very familiar with all of the legal and tax implications associated with debt settlement. For instance, they know that difference between the original amount owed and the amount settled upon is considered taxable income by the IRS. Anyone considering sending a credit card debt settlement letter would be wise to at least consider consulting with a debt or tax attorney first.

Finally, there are those who would make the case for calling your creditor rather than writing a debt settlement letter. Calling allows you to make direct contact with the company, with no worries about the letter being lost or placed in the trash can. Whatever you decide, be sure to research all of your options prior to drafting and sending a personal debt settlement letter.