How Does Credit Card Debt Settlement Works?

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Credit Card Debt Settlement

Credit cards often help us during any financial emergency or obligation. With credit cards, we can stabilize our financial situation during emergencies. We can always repay the credit card bill every month to the credit card provider. However, due to certain conditions, many people fail to pay their credit card bills. As a result, the interest charges keep on mounting, and the credit card bill becomes a burden on the person. Even the best credit card in India will apply interest charges if you fail to repay the credit card bill. Many times, people opt for credit card debt settlement. Read on to know how credit card debt settlement works and if it is beneficial.

Understanding the Credit Card Debt Settlement

Credit card debt settlement is a tactic that can be used when you are unable to pay the credit card dues. It can happen when you have to spend money over a long period due to any emergency. For example, you have to spend money regularly for lengthy health treatments. In such a case, you cannot pay the monthly credit card bills timely. During the emergency period, your credit card bills will grow, and the situation will get even worse. In such a case, it is better to opt for credit card debt settlement.

Via credit card debt settlement, you can be asked to offer a lump sum amount for a waiver. Credit card debt settlement is only for financial emergencies, and issuers do not recommend it. The amount of credit card debt settlement is decided by the issuers and depends on your negotiability. Credit card debt settlement can be considered as the last resort that requires a lumpsum amount of money.

The Process Behind Credit Card Debt Settlement

You need to know that credit card debt settlement is offered to those who have failed their credit card payments. If you have paid the credit card bills timely, you will not be considered for credit card debt settlement. Usually, credit card issuers consider people at least 180 days behind on their credit card payments for debt settlement. If you are lagging on your credit card payments, you can apply for a DIY (Do It Yourself) debt settlement. Not all credit card issuers offer DIY credit card debt settlement facilities. Many credit card issuers offer service-assisted debt settlement. A representative/agent of the credit card issuer will determine the debt settlement amount.

Credit card settlement also depends on the type of payment you are to settle. In credit card debt settlement, the debtor asks for a waiver on their total credit card bill. You have to pay anywhere between 30 – 80% of your total credit card bill. The remaining credit card bill is forgiven by the issuer during a debt settlement. Not always will the issuer accept your offer for credit card debt settlement. If there isn’t any valid reason, the credit card issuer can reject your debt settlement request.

The settlement amount is decided once both parties (debtor and issuer) reach an agreement. Once the settlement amount is decided, a fixed time frame is specified to the debtor. In the given time frame, the debtor has to submit the lump sum amount of money. Under no circumstances, should one fail to submit the lump sum amount after debt settlement. In such a case, the issuer can sue a debtor for the full credit card payment.

Why Isn’t Credit Card Debt Settlement Appreciated?

Similar to a bankruptcy filing, a credit card debt settlement hampers your credit score. You are not paying the full credit card amount to the issuer during a debt settlement. Instead, the issuer is forgiving some amount in your credit card bill. It shows your incapability to repay the credit card bill. A credit card debt settlement will be considered as a black mark in your credit history. Since your credit history will no longer be healthy, you may have issues receiving future loans/credit cards.

Before reaching to credit card debt settlement, you will start facing issues. Your credit card issuer may increase the interest charges if you are continuously defaulting on your credit card bills. Also, you may receive multiple calls/messages from your credit card issuer after failing credit card payments. Not to forget, credit card debt settlement invites tax/credit score implications.

The best way to avoid a credit card debt settlement is to take loans as per your repayment capacity. Assess your financial situation and use only that credit limit, which you can repay. Once you have applied for a credit card debt settlement, it will affect you always. It is why one should try their best to avoid credit card settlement by paying credit card bills timely. Don’t let your credit card bills accumulate to be a heavy burden. Pay the bills timely to avoid a debt settlement situation. Know more about debt settlement via your credit card issuer! 

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