We are often asked this question, whenever a call comes in. As we know, people that call in or fill out a form on the Internet looking for credit debt relief have never been though anything like this before. It definitely is not something that is talked about around the water cooler or lunch room at work. It is very personal and very confidential.

So you answer folks basic questions, however when they ask, “Why would the credit cards companies negotiate,” I wish I could just put a recorder on and play it back for them. Instead, I will write this out in the hopes that when people read it, it makes sense to them.

There are three major reasons why creditors will negotiate and settle your debt. The first one is the obvious one….they do not want you to file for bankruptcy. If you owe a creditors $10,000 (or any amount for that matter) and they will settle it for half that or $5,000, the $5,000 they collect is better than collect $0.00 dollars. So this first option is fairly obvious.

The second reason creditors will settle your debt, is that most of it is probably interest anyway. I like to give my clients this example: You get a solicitation in mail for a brand new shiny silver or gold credit card for $5,000. You mail in the form and low and behold that new shiny credit card comes in the mail about 10 days later. However, you have been wanting something for so long, that you use that $5,000 to buy…IT. You say to yourself, I can afford to put $200/month towards paying this off and do. So, in 25 months it is all paid off, right? ($200 x $25 = $5,000). But no, there was a little thing in there called interest. For argument sake, let’s say your interest rate was 15.9%. If you paid $200/month, it would take you 31 months to pay this off or $6,200, not $5,000. Put another way, if you wanted to pay this off in 25 months, you would have to pay $236.26/month not $200 for the privilege of having “IT” now.

Of course we know that folks that get caught in the “debt trap” do not even pay the $200/month, and as a result you have interest building on top of interest, to where you have already paid “IT” off probably 3-4 times over, before “IT” is paid off. The creditors know this of course. In addition, they made an additional 2.5% from the merchant when you initially bought your items to begin with. They usually do not loose money when we negotiate your debt.

Finally, how creditors account for this debt paid back is all together another little secret that would take 10 more pages to explain. However, suffice it to say, creditors do not lose money when a negotiation and settlement is made. Therefore, if you have credit debt issues, we trust that this will help answer your first basic question.