A credit card debt settlement can be a solution that you might want to consider if you have had a large credit card debt for a long time and you don’t know how to meet the monthly installments any more.
How Does a Credit Card Debt Settlement Eliminate Credit Card Debt?
In some cases, when a credit card company sees that you haven’t paid any installments for some time they come to the conclusion that it is very unlikely that they will receive the entire sum of the credit card debt and the interest you still owe them, they offer you a credit card debt settlement that reduces the amount you owe them
under certain conditions.
In other words, they write to you offering you to pay them something like half of your debt and committing themselves to forgiving you the rest of the outstanding credit card debt. Generally, they will want the repayment to happen in one single payment, but if it is a very large amount they may be willing to accept two or three installments.
Typically, the letter comes from a debt collection company. This often indicates that the initial financial institution has signed away the debt to a debt collection agency, or it might just mean that the debt collectors have been engaged in return for a percentage of any amounts they manage to recoup.
Why Are They Offering You a Credit Card Settlement?
Generally speaking, financial institutions offer you a credit card settlement when they realize that you are having such a hard time to make payments that they will probably have to start legal proceedings against you to obtain the entire sum you owe them. Even in this case they know they may not recover any money at all because you could file for bankruptcy.
Thus, they can choose between incurring the expenses of a legal process and risk not getting anything from you despite the costs, and proposing that you pay a portion of the outstanding credit card debt in one single payment in return for writing off your remaining debt. They reckon they are going to be better off agreeing to just 50% of the amount you owe them than attempting to obtain the entire sum through the legal courts.
Essentials of a Credit Card Debt Negotiation
Before accepting an offer for a credit card debt settlement you should examine some important elements.
First, you should know that agreeing to a credit card debt settlement to eliminate credit card debt will reflect negatively on your credit rating, because you will not have paid back the entire debt. If you can pay off the total sum, your credit score will not suffer as much, but obviously, you would not have received a letter with a credit card settlement offer if you had been able to pay the whole amount on time every month. Taking on the settlement proposal is generally preferable to any legal court proceedings against you.
Second, you will have to ponder very carefully how are you going to meet the conditions of the settlement —like making the one large payment they request— and the consequences of using all that money for paying off credit card debt. You need to consider if you will be able to continue meeting other debt obligations you may have, if you will have enough money to pay the rent, your monthly mortgage payment, etc. Before doing anything consider very well how
you are going to get the money for the settlement.
Third, even if you are willing to accept the credit card debt settlement,you can still try to negotiate a more convenient arrangement for you. Call them and let them know that you are not in a position to pay the amount of money they request but that you can pay forty per cent of it, or forty-five, or thirty-five. It is really worthwhile trying to negotiate a lower amount that can save you money and more penalties.
When you phone them, remember to write down the name of the agent you spoke to and if he or she agrees to your proposal, ask them to put it on paper and hold on until the letter arrives before making any payments. When you send them the check, attach a letter that clearly states that this is the final settlement of your credit card debt and request a letter back from them acknowledging that your credit card debt has been fully paid.
Paying Off Credit Card Debt with a Credit Card Debt
Settlement
Bear in mind that if you don’t accept their offer for credit card debt settlement, you risk being taken to court later on. A legal court may determine that you have to pay off the entire amount along with the costs, which means you would end paying a higher amount.
Another important matter is that you must never forget to read the small print very thoroughly if you accept the credit card settlement to pay off debt. You must be absolutely sure that they have offered you a full settlement and that there is no doubt that they will write off any other remaining debt. You must be hundred per cent certain that they have no right whatsoever to try to get more money from you in the future.
When the debt settlement process is finished, have a look at what has been added to your credit history. If you find any mistakes you must request a correction without delay. You will have to send out duplicates of the settlement letters, so always keep all the documents well organized in a folder after agreeing to a credit card
debt settlement.
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