The credit card companies are in the business of extending short-term loans to consumers and charge interest and fees on those accounts that don’t pay their balances in full each month. Sometimes these interest rates can be very high, especially when the borrower has less than good credit. So why is it that a credit card company would not only willingly negotiate on the balance owed, but would also agree to submit the account to the credit reporting agencies (Experian, TransUnion and Equifax) with a zero balance if the negotiated amount is paid as agreed?

The reasons are really quite easy to understand. There are times when consumers undergo financial hardships for a variety of reasons and are unable to make payments on their accounts. After a significant amount of time has passed without receiving a payment from the borrower, the creditor may suspect that they may possibly never get another payment. Perhaps the borrower could be making plans to declare bankruptcy. In order to minimize their losses, the creditors may agree to negotiate on the balance due in order to give the borrower an added incentive to pay at least part of what is owed. At this point in time, the creditor would rather collect something than nothing at all. It is the lesser of two evils for the creditor, but it makes good business sense to try to recover something from these accounts that have gone bad. The creditor may have millions of accounts, so if even a small fraction of them are far behind on their payments, the sum total of all the negotiated amounts can represent quite a sum of money. It only makes good business sense for them to treat these accounts in this way.

If the aforementioned facts are true, why shouldn’t everyone with a large credit card balance simply stop paying on the account and then negotiate with the creditor? The reason is because there are negative consequences to the consumer’s credit report that will come along with trying to do so. In order for debt settlement to make sense for a particular consumer, the benefits of a settlement program must outweigh its negative consequences. In order for this to be the case, the consumer most likely would already have damaged credit, and if not, is facing the prospect of credit damage even if they don’t enter a debt settlement program.

The process of actually entering negotiations with a creditor can be very difficult to achieve for consumers attempting to do it by themselves. The best advice is to speak with experienced debt counselors who have experience in advising their clients regarding a wide range of debt problems.

Author's Bio: 

Jackson Roberts is a professional debt counselor at Right Start LLC, which provides credit card debt relief services, such as credit counseling and debt settlement. They also provide educational resources through their debt relief help articles on their blog.