Debt Settlement for Credit Card Debt: How the Process Works

debt settlement services

Credit card is the most popular payment method, yet it also continues to be the riskiest mode of payment. One factor that fuels this fire of fright is credit card debt, before we discuss how to avoid being trapped in debt, let us understand what actually is debt in relation to a credit card.

What is Credit Card Debt?

Any amount that is withdrawn or used from the credit card is a loan. How much money you can withdraw depends on the credit limit. You can continue to use the card until you hit the limit by just paying a small fee per month, while this method is good when you are in a pinch.

My suggestion is to pay the outstanding amount before the due date in full and never rely on a nominal charge to keep the card functional. Now let us say you find yourself in a tight spot somehow and the debt amount is greater than what you can pay off, then going for Debt Settlement can be a ray of hope for you.

What is the Debt Settlement Program?

When both parties – lender and borrower agree on terms, in which the borrower doesn’t have to pay the full amount of debt, rather pay a lump sum in one go, is referred to as settlement. 

Now you would wonder why anyone would waive off the remaining amount of money just like that? Since credit card debt is an unsecured loan, meaning there is no collateral involved from where they can salvage the pending debt; chances are they might lose all the pending amount. Therefore, the lender agrees on debt settlement.

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How to Opt for Credit Card Debt Settlement

Remember, this is not the sure-shot way to get out of the debt. In the worst case, you might not even be able to settle it, depending on how large is the amount or what is your credit history. If you want to go for debt settlement, here are a few points to remember. 

  • Cut down your credit card bill to zero for three to six months, minimum. 
  • Refrain from making any big purchases with that card.

There are two ways in which you can apply for the settlement process, one is you directly approach your creditor if it feels like a daunting task, or you can take help from debt settlement companies who offer you their services to resolve matters like these. Both methods have there set of pros and cons. 

How to Negotiate by yourself

Visit the organization related to your credit card, then explain to them how you cannot make the full payment but have paid a lump sum of about 30-50% of your total debt. Note that you will need to make payment in full cash. Before emptying all your saved money, make sure you have all your extra expenses sorted, as it can land you in a hard spot if money is already scarce for you.

After you have reached to finalization of the settlement, get that agreement in writing before you proceed further with payment. This is to save you from further problems with the collection agency and possible harassment.

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The positive point of this approach is that there will be no extra cost to you, but adversely can cause an extra load of going in and out of the office. Another plus is as the chances of the company rejecting your offer are slightly lower.

Third-Party Debt Negotiation

If you are not confident in your skills of negotiation, you can take help from any debt settlement company. They act as mediators between you and the company you took the loan from. They will charge you fees for providing their Debt Settlement Services. You need to be careful when choosing debt settlement company cause some creditors might not work with them. Similarly if the company is not trustworthy you can end up in even more trouble.

A good company can ensure a smooth transaction and will save you some time and lessen your worry about paperwork. As a bonus, you also get legal guidance.

Regardless of your negotiation stance, you will have to be patient in situations like these, as the whole process can take several years to resolve. Even after settlement, the amount can be bigger than before as it will stack up during those years, so be prepared for that. Another thing you should remember even if the part of the debt or whole debt is waived off, you will still need to pay tax on that amount.