As per research, a significant number of credit card holders carry debt every month and it has now reached a record high of $1.21 trillion. The numbers explain it all well that credit card debt is quite common now due to the worldwide economic crisis. Almost every other person nowadays is going through some sort of a financial hardship and a debt on top of it can really make life difficult.
Luckily, for people dealing with unpaid debts, there are multiple debt relief options out there to make things less overwhelming. Especially if you have a valid reasoning about why you can’t pay your monthly installments then you qualify for a debt settlement easily.
What Is A Credit Card Debt Settlement?
In a credit card debt settlement, you negotiate with your primary creditor, that is your credit card company and request them to write off at least half of your debt by paying them a lump sum amount that you can easily manage. If your credit card debt is piling up at a rapid pace then entering a settlement will be your last resort.
One of the most important things you need to know about such a settlement is that it will take you months and sometimes years to achieve your goal. The wait makes sense because why would a card issuer ever agree on just forgiving your debt for no reason? You need to convince him, present evidence of your financial hardship and really learn effective negotiation to work things out.
In the meantime, it’s recommended that you stop paying the monthly installments to your creditor and instead save that amount in another dedicated account to pay the settlement all at once. All of this comes with risks because even with delinquent payments, your credit score will suffer. Late or missed payments are reported to credit bureaus and this affects your credit score. However, to achieve your financial goal and get rid of your debt, you’ll have to sacrifice your score in the initial stages of debt settlement.
Settled Debts Are Better Than Unpaid Debts
You can’t just ignore your credit card debt and let the loan pile up. This can literally wreak havoc to your credit report. On the other hand, even if a debt settlement damages your score, it will be temporary and you can easily rebuild it once the deal is finalized. In debt settlement, you can request your creditor to mark your debt as “settled” instead of “unpaid”. This is important because in the future, your lenders can easily access your credit report and it will put a good impression on them that you at least paid some amount instead of totally ignoring the debt and leaving it unpaid.
Why Is It Important To Settle A Credit Card Debt?
An unpaid credit card debt can lead to financial instability and stress because it comes with the kind of consequences you’d never want to deal with. Here’s the damage your credit card debt can do;
- Higher interest rates: Most of the credit cards out there come with high interest rates but it gets even worse when you have an outstanding balance. With an unpaid debt, your interest will keep increasing overtime and you’ll have to pay a lot more than what you owed initially.
- Difficulty getting any loans in the future: A high credit card balance means an increased debt to income ratio. This can become a huge hurdle for you especially if you want to take more loans in the future.
- It will hurt your credit score: A poor credit score reflects poor financial habits. If you have a lot of unpaid debt, all the missed and late payments will reduce your credit score and you’ll have difficulty making any purchases in the future including a car or a house.
- Legal action complications: Not being able to keep up with your payments and simply ignoring the debt can lead to legal complications too. Your debt can go into collections, you could face lawsuits, wage garnishment and even asset seizure.
Best Strategies For A Successful Credit Card Debt Settlement
Now that you know why it’s important to consider debt settlement when you are dealing with credit card debt, it’s time to learn some effective strategies that will help your deal go through.
1-Review Your Financial Situation
Before entering into a debt settlement agreement, it’s important that you know about your financial situation in detail. You need to review your expenses, your income, the amount of debt you owe and the amount of debt you can afford to pay as a lump sum. Writing it all down in detail and making a budget before starting the negotiation will just make the process a lot easier.
2-Talk To Your Creditor
The next step is to just talk to your creditor and make your offer. Even though it seems a little intimidating, don’t worry and be confident especially if you are telling the truth and you really can’t afford the monthly repayments. If negotiation isn’t your cup of tea then you can even hire a debt relief company to work on a debt settlement with your credit card company.
Two of the most important factors that can make or break your deal are; the lump sum amount you are offering to your creditor and the reason why you can’t afford the debt. If you have a valid reason like a medical emergency or loss of income and if you are offering your creditor a lump sum of more than 50% of the total amount you owe then you can definitely expect your deal to go through.
3-Stay Consistent With Your Efforts
No matter what debt relief option you choose, remember that things will take time to work and you won’t just become debt-free overnight. The same is the case with a credit card settlement. There are high chances that your creditor will reject the initial offer you make but that’s where negotiation works. You should come prepared with another offer that benefits both you and the lender.
Sometimes debt settlement can take years but you always have to take the first step if you want to make the change. Just because it’s an overwhelming process doesn’t mean that you shouldn’t give it a try. Achieving your debt settlement goals really depends upon your efforts. Just don’t lose hope and stick to the process to achieve your desired results.
4-Documentation Of The Agreement
Once you and your lender both agree on the settlement terms, it’s time to document it all. You have to request your creditor to give it all to you in writing including the amount being settled, the lump sum you have to pay, the timeline provided and the fact that once you make your payment, your creditor will mark it as “Settled” on your credit report. It’s important to document all the information to avoid any unwanted legal issues in the future.
5-Honour The Agreement
It’s true that you go through a lot of stress when working on a debt settlement. If you’ve finally convinced your credit card issuer on writing off a portion of your debt and you are very close to your goal then it’s important to stick to your agreement and pay accordingly. If you don’t honour the agreement and again start delaying your payments or ignoring your debts then things can go down the drain and you’ll eventually end up into a deeper, bigger debt than before.
Is Credit Card Settlement Worth It?
If you are facing a serious financial crisis and can’t afford to pay the debt off then it’s best to opt for debt settlement. It’s a long route and you need to be patient with the process but if your deal goes through and your creditor accepts your offer then all your efforts will be worth it. In a nutshell, yes, credit card settlement is worth a try as it can reduce your debt amount by half and save you from the horrors of bankruptcy.
FAQs
Q1. Will A Credit Card Issuer Accept 50% Settlement?
When settling your debt, you need to make a realistic offer to your creditor in order for him to accept it. A low offer will obviously be rejected. You need to offer at least 50% or more lump sum amount to settle your debt without any hassle.
Q2. Do Banks Settle Credit Card Debts?
Yes, banks do offer credit card debt settlement but you need to qualify for this debt relief option in order to avail its benefits. If you have an unsecured debt that’s piling up rapidly, you can try to negotiate on a settlement with the bank.
Q3. What Is The Disadvantage Of Credit Card Settlement?
The downside of credit card settlement is that it can have a negative impact on your credit score. On the other hand, even if you choose to ignore the debt and just keep on piling up your missed payments, it can have an even worse impact on your credit report. In simpler words, debt settlement is always worth it no matter what its disadvantages are.
Have a significant outstanding balance on your credit card that you can’t pay off? Try Mountains Debt Relief for the best financial assistance and debt settlement strategies!