Credit Card Debt Settlement

Credit card debt settlement, also known as discounted debt settlement, is sometimes on option offered to people with overdue debt who are unable to meet their repayments.

How Does Discounted Debt Settlement Work?

The way discounted debt settlement works is that upon noting that no payments have been made for some time, the finance company you owe may offer to reduce your bill by around 50% or so. If you accept, their requirement is generally that you finalize your debt in one lump sum, though if the amount owing is large they may agree to being paid in two or three instalments.

The reason a finance company may present you with this alternative payment option is quite simple. Generally speaking, they would rather accept less money and write off the balance, than take you to court. Court proceedings would cost them money and there would be no guarantee they would receive the money owed as you could declare yourself bankrupt.

Should You Agree to Credit Card Debt Settlement?

Whether or not you agree to discounted debt settlement will depend upon a number of factors.

While accepting the finance company's offer may be tempting on a monetary level, something to keep in mind is that in doing so your credit card score will be impacted negatively. For this reason, if there is a way for you to pay in full, you should do so. Assuming your reasons for not being able to pay are genuine and your financial situation is not likely to take a turn for the better, agreeing to a discounted debt settlement would be preferable to being taken to court.

If you want to take up the offer of credit card debt settlement, the first thing you should do is work out how you will pay. Will paying mean you will have to let other expenses slide? If so, what will the consequences be? If, for example, you were to use money to pay off your debt that is normally set aside for food, what would your kids eat? And if you use your rent money to pay your debt, you may find yourself living on the street! 

If you are not quite able to meet their offer, it's worth calling the credit card company to see if you can negotiate a lower percentage repayment. They may be quite willing to settle on 40% of the money due or whatever it is you can afford, so don't hesitate to ask.

Should you decide to pursue this avenue, be sure to make a note of the name of the person you speak with. If they agree to a lower credit card debt settlement, ask for a letter outlining the new terms. When the letter arrives, send your check along with a letter stating that your payment is to fully settle your debt. Include a request that they verify by return mail that your debt has been cleared and no further claims will be made upon it.

Something to be aware of when considering whether or not to accept their offer is that not going ahead with it could mean you eventually find yourself being taken to court. If that were to happen the judge could rule in favor of the credit card company, meaning you would have to pay the full amount owing, PLUS any associated court costs.

Once your repayment plan has been finalized, it's a good idea to check your credit card record. If anything has been incorrectly listed, request it be corrected without delay. Having a written record of everything that has transpired regarding your debt and settlement will facilitate this.