[vc_row][vc_column][vc_column_text][Note: This article originally appeared as a guest post on Steve Rhode’s blog at GetOutofDebt.org. Thanks to Steve for permission to repost here on The ZipDebt Blog.]
If you’re facing a legitimate financial hardship and can’t make the minimum payments on your American Express credit card one potential solution is to negotiate a lump-sum settlement for less the balance owed. If you’re unfamiliar with debt settlement, you’re probably wondering how someone who can’t make their monthly payments would have the funds needed for a settlement at, say, 50% of the total balance. But there is a huge difference between income and assets, and many consumers who can’t sustain regular monthly payments due to lack of income or other financial hardship are able to use some of their dwindling savings for the purpose of settlements. Other sources for funding settlements might include the sale of household items, collections, cash value life insurance policies, borrowing from family, or sale of property. These are one-time funding sources, in other words. Once the money received from a one-time source has been expended, there is no more to replace it. But such funds can be put to excellent use in retiring a major credit card debt, when otherwise the customer would just be facing an unsustainable situation (which in turn often leads to bankruptcy).
When it comes to settlement with American Express, there are some specific facts about this creditor that you should be aware of. Prior to the financial crisis of 2008, American Express was not a bank like most other major credit card issuers (such as Bank of America, JP Morgan Chase, Citibank, etc.). The company converted to a bank holding company structure in November 2008 in order to become eligible for Treasury Department assistance under the infamous “TARP” program. The reason this matters is because there are some important differences that need to be taken into account in terms of the “collection culture” at different types of creditors. For example, most of the major credit card banks eventually SELL their delinquent accounts to various debt purchasing companies, so when you are trying to settle an old charge-off account it’s very possible that you’ll be dealing with a debt purchaser or their collection agency. Yet it’s highly unlikely you will encounter this situation with respect to any type of American Express account. This creditor rarely sells its accounts, no matter how old. It’s simply a part of the collection culture that developed at American Express, which positioned itself over the years as being “different” than Visa or MasterCard.
Why is this relevant if you’re trying to reach a settlement with Amex? Many websites offering advice on settlement of credit card accounts recommend sending “debt validation” notices to collection agencies or creditors, in theory “putting them on notice” that you are aware of your consumer rights and demanding copies of their backup documentation. There are definitely situations where a debt validation letter is appropriate and effective. However, when you are trying to settle an American Express account, it would be a major tactical mistake. The reason is because they have the documentation. It’s trivially easy for an original creditor to produce a stack of monthly statements two inches thick and mail it to you. Voila. Debt validated, and account moved to an in-state legal firm for your troubles!
The first rule in settlement with American Express is therefore to avoid any sort of tactical “games” like debt validation, which are generally unnecessary anyway. I always recommend proactive telephone contact with creditors, and American Express is certainly no exception. Get on the phone a couple of times a month and let them know about your situation. Be aware that you’ll hear various kinds of options presented to you depending on how far behind you are on payments. For example, if you are two payments behind, the representative will generally not discuss settlement yet and will only speak in terms of different payment options. Listen carefully to these proposals and note them down. Sometimes these alternate programs can include low interest rates and lower monthly payments, and for some consumers this level of relief alone may provide sufficient breathing room to get a handle on their financial situation.
If you’re more than three payments late, the odds are good that you’ll be hearing from an outside collection agency. It’s quite common for American Express to assign their accounts to third-party collection agencies well before the point of charge-off at 180 days late, often as early as 90 days late. Don’t panic if this happens! Understand that the majority of settlements with American Express are negotiated through these third-party collection agencies.
Achieving a settlement with any creditor is a matter of balancing RISK versus SAVINGS. You’re in a financial crisis and want to obtain as deep a discount off your balance as possible, but you also have to be mindful of the legal risk that mounts whenever you are behind on payments with a creditor. One important tip for determining the risk factor is to assess WHERE the assigned collection agency is located. If they are not a law firm and they are in some other state than yours, then the situation is low risk compared to assignment to a law firm in your state. American Express is not a “bluff” creditor, so we do take any legal threats from them seriously once a file has escalated to placement with a collection attorney firm (licensed to operate in the client’s home state). In such situations, the risk is greater, so we accept a higher figure than we might otherwise. Where the risk is lower, we can hold out and try to do better on the settlement percentage.
Let’s say you are talking with a third-party agency in a different state and they have agreed to a 40% settlement. You are happy with the result and you can fund the settlement ok. The one unbreakable rule in debt settlement is to GET IT IN WRITING FIRST, before you pay! You must have a letter in-hand before you make payment on your settlement. There are NO exceptions to this rule. A faxed copy is fine, and in fact most settlement letters are just fax copies of the agreement. This isn’t a matter of “trust,” or “distrust.” It’s just simple common sense that any agreement modifying your contract with American Express (or any other creditor) must be in writing. If you have a debt collector balking at putting the settlement in writing, then just put your foot down and insist that you will only proceed on the basis of a written agreement letter. It doesn’t have to be long! It just has to cover the essentials – the account number, amount of settlement to be paid, any payment installments listed clearly with due-dates, and the transaction has to be defined or referred to as a “settlement,” or “settlement-in-full.” Simple enough!
With your letter in hand, then you can make your payment. Cashier’s check by Federal Express is one method, but you want to be sure that you’ve coordinated payment method with the agency. Most of them prefer check-by-phone or electronic check (same thing). This is also called an ACH transaction, and it means you provide them the bank routing number and account number off your checking account. If you have it in writing first, it’s ok to do this. If you are negotiating settlements with multiple creditors, it’s better to set up a special checking account for this purpose. That way you can react quickly in case anything goes amiss.
One more important point about settlements with American Express. Many consumers have both personal and corporate cards issued by this creditor. It’s common to carry a personal account and then receive one issued by your employer, to cover work-related travel expenses, per diem costs, and so on. The corporate cards are generally issued to the corporation itself, even though your name appears on the card, so generally it is not advisable to attempt settlement on this type of account, as it could have a direct effect on your employment status.
Take the high road and negotiate in good faith with your creditors. Don’t play games or make up stories about your situation. If you are in a financial crisis, that is enough, and you just need to be patient and persistent. Start out with an offer around 20-25% of what you owe, but state this in terms of a dollar amount. You are aiming for a financial outcome that you can live with, not a world-record low percentage. As the negotiation proceeds, resist your initial urge to jump your offer right away, and give it some time to see how things go first. You can always increase later. The first offer you receive from an agency will rarely be the best offer available, no matter how convincing the explanation that this is “the best we can do.”
Over time, and with a series of negotiation calls, it’s possible to reach a settlement agreement on your American Express card that you can handle. Don’t be greedy. Once you reach your goal, accept the settlement and take the deal off the table. If you’re like most clients, you’ll feel a tremendous sense of empowerment at achieving a successful settlement. It can be a huge game changer financially, as well emotionally.[/vc_column_text][space height=”4″][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]UPDATE: August 8, 2016
In the five years since I originally published this article, I’ve received numerous questions and inquiries about negotiating settlements with American Express, and talked to hundreds of consumers who were finding it difficult to reach an agreement even with all the advice I had presented in the article.
A big part of the problem in dealing with American Express is due to two key factors.
(1) They move the file quickly to outside collection agencies compared to other major credit card issuers, and many of those assignments are to in-state law firms.
(2) Their collection law firms often file lawsuits as quickly as 4 months late, so many (if not most) American Express settlement negotiations are taking place with active litigation in play.
While I’ve successfully coached many people to reach settlements with American Express, I am no longer actively recommending the Do-It-Yourself method for dealing with this very difficult creditor. Settlement with Amex requires steel nerves and precision timing, and is best handled via a customized full service approach.
If you are facing a default situation with American Express and would like to have some professional assistance in resolving the matter, please read my 5-part series on Tailored Debt Settlement.[/vc_column_text][space height=”4″][/vc_column][/vc_row]
Lele says
I have two American Express cards with a total balance of $18,500 (one gold and one platinum). Between the economy and a general loss in business we have determined that we will not be able to pay the balances in full and, in fact, will only be able to make a small payment to each of them. The cards have been closed, by AmEx, and today we received a call from them for payment on the platinum card. When we told them we could not make the payment they offered the Hardshp Plan with payment in full occurring in 12 months. The payment amount on this one card is way over anything we can pay per month so I know there is no way we can pay the hardship amount for both accounts. I feel that we should make an effort to pay what we can each month to these accounts to show goodfaith that we are willing to pay these cards but I’m not sure that that will help us in any type of settlement. Bankruptcy is not an option for me as it will truly adversely affect my job which will only create even more of an issue. All other cards and house note are being paid as agreed. Should we make payments as we can regardless of the amount, should we not…I’m truly confused and just want to do the right thing here.
Charles says
Lele, when you underpay the minimum payment for a revolving credit card account, the creditor applies the payment but the account will still move forward toward charge-off, and follow the usual collection cycle anyway. In other words, you are just postponing the inevitable and draining off funds in the process. You really need to coordinate a payment plan with Amex if you want to avoid the unpleasant consequences of default with this creditor. Based on how you’re describing your financial situation overall, I think it would make sense for you to request the free 20-minute consultation with me. Please see the link at the upper right of this page, thanks.
Jeff says
I have a AMEX Blue personal account with a balance over $23K. I have had the account since 2004 and never missed any payments. I became unemployed more than a year and a half ago and my unemployment has run out. I entered into a payment plan in May this year with 0% for 6 as they have suspended my charging as well. I am still unemployed and experiencing severe hardship at the moment. My wife is working PT and helping as much as possible but we have 3 kids and cannot make ends meet anymore. I’ve paid on time through the payment plan as promised but by January that wont be possible anymore. I want to pay this account but its to hard. I have a 401K that I have no choice but to cash in just to make ends meet. I would have about $12K I could offer them in settlement. What are my chances since I’m not currently delinquent. Any suggestions?
Charles says
Jeff, you won’t be able to settle $23k with $12k while in current standing. It’s not just Amex — no major creditor will accept 50% settlements or less until they work you over first via the collections process. It’s definitely possible to settle with this creditor, as I outlined above in the original article, but usually the earliest is after 90 days late, and more likely 120-150 days late. Based on your situation as described, I recommend that you consult with a couple of local bankruptcy attorneys to compare options. If you are eligible for Chapter 7, that may be a better solution for you, compared to diverting precious remaining funds to a settlement, especially if you will be incurring extra tax liabilities by draining a retirement account. If you will be stuck with Chapter 13, then settlement may still make sense — so feel free to get back in touch depending on what you find out.
Lele says
Hi Charles,
My husband knew a bankruptcy attorney who is local and while we are not filing bankruptcy we are going to have one of his associates handle the Amex card. In fact he has already sent them a letter stating that he is the one to be contacted during this process. While this got started my husband and I called several of our other cards that had very high rates and were able to work out lower rates with them and fixed monthly payments until paid in full. All steps in the right direction I believe.