What Is The Deal With Working Out Credit Cards?

Inadequate cash flow is one of the first complications of an upside-down business, a business that is experiencing reduced profitability as so many businesses experience at some point in their evolution. The business owner, typically in need of critical cash for some necessary expenditure, will max out his credit cards and then not be able to pay them down, resulting in bad credit for the business owner and a long-term issue that will not go away. Unfortunately, at some point in time, the creditor will acquire a judgment against the defaulting card holder and the issue will attach personally.

So, what can we do? Typically, we can negotiate a discount of approximately 65-70%, leaving 30-35% to be paid.

One issue that sometimes occurs is that while this may be a great deal, or at least a deal that can be considered acceptable, it still requires a lump sum payoff of the remaining 30%. Sometimes we can negotiate a short payoff of three payments over three months; we can also negotiate longer term payoffs of discounted amounts, but it’s harder to do. But note, the credit card companies will not negotiate a workout until the card is at least 90 days in arrears, thus trying desperately to keep current may be counter-productive to a workout strategy and will prevent a workout negotiation until there is a 90-day period of non-payment.

The damage has been done to your credit history, so the debt relief, while further damaging, may be a reasonable objective. You can always use a debit card once the credit cards are either shut off or compromised with a negotiated payoff. Further, once credit cards are discounted and negotiated with a workout, you can then have your credit rehabilitated and your credit score may become far more useful again.

Sometimes it’s a choice of the lesser of two evils, not what any of us want to do but sometimes it’s the only alternative to financial solvency. A workout is a good business decision for both sides of the debt when the circumstances are right. Work out your credit card debt and then rehabilitate your credit. It’s a good plan when circumstances warrant it.