What Are Your Choices With Credit Card Debt Settlement

April 21, 2009 by  
Filed under Debt

Reduce Your Credit Card Payments by 50%

There comes a time when the company who you have taken out your credit card with, comes to the realization they are not going to receive the full money owed to them. They will have taken note that you are experiencing financial difficulties due to your not making your monthly payments over a long period of time. In this instance, you may be offered a credit card debt settlement.

When the debt has gone on for this long without being contributed to, the settlement letter will likely be sent from the debt collection company used by your credit card company. This discounted debt settlement offer will request that you pay a proportion of the full amount, say 60% and the rest of the debt will be written off. However, they will require the settlement balance to be paid all at once or possibly in 2-3 smaller instalments depending on the how much is to be paid.

You might wonder why the credit card company is willing to reduce the balance of your card so drastically. Well, the reason for this is that they realise it is fruitless to continue requesting the full amount as they know you cannot pay up. If they were to take court action, there is still no guarantee that they will receive the money and will have to pay the court fees, increasing the money lost. The safest bet, for them, is to ask you for as much as you can pay and settle the debt.

Once you have received the credit card debt settlement offer you should assess you options as there are both pros and cons for going ahead with it. If you do decide to take the offer and pay only a proportion of your debt, this will have a negative impact on your credit ratings for receiving future credit such as a mortgage. You must act wisely, if you can pay off the debt and clear you credit for the future, this may be for the best in the long run.

However, the chances are you are in fact unable to pay the full balance as you wouldn’t be in your current predicament. In this instance paying the reduced balance is almost certainly a better option than court.

If you decide that paying the settlement offer is the route you will take, take time to work out how you will budget for the cost. You may want to ask for debt counselling with your bank if it is available or find out about free debt counselling. Can you cover the debt with your next pay check? If this is looking unlikely, try contacting your credit card company and asking for the reduced balance to be settled with a series of instalments. You could arrange to set up a direct debit from your bank account so the instalments are taken directly from your account.

Another option is to request that the offer be reduced further to 40 or 50% and maybe you could pay the lot or with only a few instalments. At this point the credit card company are clearly just wanting to minimize the risk not being paid at all, so they may agree to this further reduction

If you offer is accepted over the phone, be sure to take the details of the agent you spoke to including name and extension number. Ask that the amended agreement is put in writing and once the letter arrives, post your check along with a signed letter stating that the debt has now been settled.

Always remember to take a copy of the letter for you own records and keep a hold of the correspondence they have sent to you. Make sure that there are no clauses in the settlement where they can approach you in the future to pay off the rest of the balance, read the full terms and conditions.

Finally, make sure the correct details and been recorded in your credit rating record. Should there be any errors, arrange to have them corrected immediately.