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Credit cards offering to settle on the cheap

Fred took a different approach to paying off his credit cards. He deliberately missed a couple of payments, then called the credit card companies and asked them to slash his balances.

Bank of America, Discover and Citibank all said yes, offering settlements from 40 to 60 cents on the dollar. No arguing, no fighting, no asking to speak to a manager.

Debt settlement“They gave it up before I asked,” says Fred (who asked us not to use his real name so this wouldn’t become part of his Google legacy.)

This might sound preposterous given how the credit card industry has been treating its customers since the financial crisis struck — raising interest rates, slashing credit limits and even canceling the cards of customers in good standing.

But with 6.5% of all accounts at least 30 days late, it looks like banks are quietly trying to keep the recession from turning credit card defaults into the next mortgage mess.

Debt settlement is nothing new.

Reputable credit counselors routinely negotiate “debt management plans” with the credit card companies, which writes off about half of a creditor’s debt and establishes a realistic, 36- to 60-month repayment schedule to retire the balance.

But everything we’re seeing and hearing indicates there’s a sudden willingness on the part of credit card companies to strike such deals directly with their customers.

Customer service representatives have been empowered to settle debts and we’ve even heard that some cards are calling delinquent customers and offering to cut their debt in half if they’ll pay up.

These deals usually require cardholders to pay the remaining balance immediately. At most they’re given a couple of months to come up with the money.

The banks are being cagey on exactly who qualifies for such a settlement and how much debt they’re willing to forgive. But the American Bankers Association, their trade organization, confirms the general trend.

Comments (4)
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4 Existing Comments
  1. Alisa said:
    on July 11th at 08:29 am

    But people should be aware that when they accept these “settlements” often times you will receive a lovely document at tax time from the bank listing the write off amount as income for you so the consumer has to pay taxes on it.

  2. TG said:
    on July 14th at 04:11 pm

    That beats paying the entire amount to the credit card company. Also, in this environment and for the next several years, I am sure the IRS is willing to negotiate as well considering how the tax bill came about. Many of these antiquated tax laws will be going away. Case in point, paying tax on losses to banks on foreclosures. That went away during the Bush administration. I think the tax on credit card losses is next.

  3. willie said:
    on December 7th at 07:53 am

    people who default on credit card debt are thieves

  4. harvin007 said:
    on March 19th at 04:52 am

    yes we are thieves but banks are greater thieves then us