Many readers of “The Do-It-Yourself Bailout” are concerned that they cannot settle their credit cards for less than they owe if they do not have the money up front to make the settlement payment. For people in financial difficulty, coming up with a flat payment may seem difficult, even impossible. However, there are many factors to consider that could put you in a position to settle your credit cards even if you think you can’t afford it.
When settling an account for less than the amount owed, you do have to make the settlement payment. So, for instance, if you’ve got a $10,000 balance and settle for $3500, you need to pay the $3500 up front to settle the entire account in full.
Many people stop right there with debt settlement because they think they can’t afford it. But let’s do the math. If you’re paying 29% on that $10,000, that’s $2900 a year, about $250 a month. Let’s say you stop paying your cards and it takes 10 months to reach a settlement of $3500. If you were to set aside the $250 a month that you would have been paying in interest on your card, you’ll have $2500 of the $3500. Which means you only have to save an extra $100 a month, about $3 a day (make coffee at home in the morning instead of going to Starbucks), and you’ll have the $3500 to settle out the entire $10,000.
If you’d paid the $250 a month, you’d have given the bank $2500 and still owe nearly the full $10,000. By settling, the entire balance is gone and you won’t be paying that $2900 year after year, either.
And even then, many banks will accept a payment plan for the settlement. In all likelihood, it’ll be a much more accelerated payment than what your regular minimum payment would be, perhaps over 3-4 months. But here’s the trick, you’ll have to make every payment, no skipping now. If you make two then miss one, the settlement agreement will void.
Like always, be sure to get every settlement agreement IN WRITING before sending in any payments. I give copies of all my settlement agreements in the book for you to review the language, but definitely consult an attorney to make sure that your agreements cover all the needed language to protect you.