Credit Card Debt Settlement

Credit cards are a source of easy credit for many people, and, as a result, often lead to overspending.  Many consumers are finding themselves simply overextended, and with competing bills such as mortgages and utilities, credit card bills may become less of a priority.  If you become unable to pay your credit card bills, however, you potentially can enter into an agreement with your credit card company to “settle” your debt, or to pay the company a lower amount than you really owe.

When You Can Settle Credit Card Debts

Unfortunately, you are unlikely to achieve any sort of credit card debt settlement with your credit card company if you are not delinquent in your payments.  A creditor is not required to agree to settle your credit card debt in any way, or even negotiate credit card debt, and usually will only do so when your account has become severely delinquent, in that receiving any sort of payment from you is unlikely.  However, failing to make payments will negatively affect your credit score, which is important to keep in mind as you make decisions as to how to handle your credit card debt.

How Credit Card Debt Settlement Works

Credit card debt settlement works in a few different ways.  First, you can offer the credit card company a lump sum payment in return for satisfaction of your entire debt.  The advantage to the credit card company is that it gets at least part of your debt satisfied up front.  The advantage to you, of course, is that you pay less than the principal balance that you owe. 

Another method of credit card debt relief involves a work-out program with your credit card company, which may be temporary or permanent, depending on your situation.  A credit card company may agree to stop assessing late fees and/or decrease or eliminate your interest rate, so long as you pay according to a set payment schedule.  This type of debt settlement may allow you to have substantial credit card debt reduction on the amount of your credit card debt. 

Problems with Credit Card Debt Settlement

One of the most negative consequences of credit card debt settlement is the damage done to your credit score.  As far as credit ratings go, a notation on your credit report that you have settled your credit card debt has essentially the same effects as a notation that your debts have been discharged in bankruptcy proceedings.  Therefore, if you are concerned about preserving what’s left of your credit score, then credit card debt settlement may not be the best choice. 

Additionally, if you enter into a settlement with your creditor, your account is likely to be closed or frozen, and/or your credit limit severely decreased.  Obviously, the creditor does not want you to continue to rack up debt when you are already having difficulty paying your existing debt.  However, if you have no emergency fund or savings, and you fear that you might have to rely on your credit line for regular living expenses or for unexpected expenses for a certain period of time, then this may not be an attractive option.

What to Do When a Creditor Will Not Agree to Settle Your Credit Card Debt

If you are not having luck negotiating with your creditor on your own, and you have been unable to work out any sort of settlement agreement with your creditor, you may wish to turn to a professional for assistance.  Various consumer credit counseling agencies exist to help debtors negotiate these types of settlements with creditors.  Nonetheless, you should take care to choose a reputable credit counseling agency that is a non-profit, rather than a for-profit organization. 

You also may wish to consult an attorney for further options.  Enlisting the support of an attorney experienced in creditor-debtor relations to negotiate with your credit card company may result in a debt settlement that is advantageous to you.  By presenting all of your available options to you in terms of dealing with your debt, and making your creditor aware of your options, as well, which are likely to include a complete discharge of your debts through bankruptcy, your creditor may be more inclined to reach a settlement of your debt.