Credit cards, when used wisely, work in favour of your finances. To ensure maximum benefits, you must ensure that your credit card usage ties in with what you can afford. This can be hard to resist, given that credit cards boost your purchasing power and also give you access to a whole range of benefits. Depending on the issuer, you may get interest-free borrowing periods, access to unique amenities and so on. However, if you find significant outstanding debt, consider credit card settlement as a last-resort measure.
Read on to know more.
What is a credit card settlement
A credit card settlement means that you enter an agreement with your card provider to pay off a lesser amount against the outstanding balance.it is a tactic you can employ when it is challenging to keep up with your credit card dues. This can happen because of a sudden emergency that requires ample financing for a long time or reckless spending. Whatever the reason, the main issue at hand is that your credit card dues will multiply every month and cause severe financial stress. In such a situation, it’s considered a settlement offered by both banks and debt settlement agencies.
Here, you may be advised to either set aside a lump sum and offer it in exchange for a complete waiver or directly appeal for a settlement. Credit card payment settlements are only done in extremely rare cases, and issuers do not encourage it. You should consider a settlement as a last resort, and even then, there is a meagre chance that the issuer will agree to it without you making a lump sum payment. The credit card settlement percentage depends on the issuer and your ability to negotiate.
Does the credit card settlement process affect your credit rating
Credit card debt settlements hurt your credit score almost as much as filing for bankruptcy does. These settlements severely damage your score, and it can take several years to recover from it. This is mainly because your credit history records a settlement as a black mark that can last up to 7 years and hamper subsequent loan applications.
Additional Read: How to increase your credit cardCIBIL score?
What is the credit card settlement process
Given below is the process to initiate credit card settlements.
- Visit the issuer or a debt settlement agency
- Explain your inability to make payments via a credit card settlement letter and mention that you’re open to negotiating other repayment terms
- Offer a lump sum or inform the issuer of your plans to file for bankruptcy
Following these steps, the issuer may either deny or approve a settlement. If approved, the issuer may offer a repayment plan based on your current income or grant you a temporary forbearance agreement.
Additional Read:Credit card without income
Is credit card settlement a good idea
Typically, you’re advised to avoid credit card settlements because of their impact on your credit score. However, depending on your current situation, you may have no other choice but to settle. For this reason, it is important to know how to negotiate credit card debt settlement yourself, as it allows you to approach the issuer and avoids the fees associated with hiring a debt settlement agency.
The bottom line is that to avoid a situation where you need to resort to a settlement, ensure that you spend only what you can afford via your credit card and clear bills on time. Opt for a credit card issuer that allows you to make payments via multiple payment gateways to simplify the latter. The Bajaj Finserv RBL Bank SuperCard is one such option as you can pay using any of the six payment options. Among them is the RBL MyCard app that allows you to pay your bill in just a few taps. Use this feature to ensure that you never miss a credit card bill payment.
The SuperCard also allows you to benefit from various credit card offers on lifestyle, entertainment and utility purchases. Additionally, you earn reward points on every transaction, facilitating greater savings of up to Rs. 55,000 per year. To avail of all these benefits and more instantly, all you need to do ischeck your pre-approved credit card offeronline. Apply using a customised credit card offering and get quick approval.
FAQs
Settling your credit card debt typically means that you negotiate an agreement to repay a portion of your balance, because you are facing hardships that prevent you from repaying the debt in full or if you cannot pay your outstanding balance for other specific reasons.
What happens when you do a credit card settlement? ›
If your account has not already charged-off before you accept your settlement offer, then it will be permanently closed once you do accept the offer. This means that you will not be able to reopen the account and you cannot regain use of the card. The settlement may be reported to the credit bureaus.
What is the credit card settlement process? ›
If any consumer with a credit card cannot make the total payment owed, they can contact the respective bank and indicate why they cannot pay the entire amount. They can then negotiate on the amount and reduce the outstanding balance to be cleared. This is known as credit card settlement.
What is the disadvantage of credit card settlement? ›
Debt settlement can eliminate outstanding obligations, but it can negatively impact your credit score. Stronger credit scores may be more significantly impacted by a debt settlement. The best type of debt to settle is a single large obligation that is one to three years past due.
What percentage will credit card companies settle for? ›
What percentage will credit card companies settle for? Creditors often accept 20% to 100% of the outstanding balance. The actual amount they are willing to settle for depends on individual circ*mstances and negotiation skills.
Is debt settlement a good idea? ›
Debt settlement might be a suitable way to manage your overwhelming debt, but it could also drive you even deeper into a financial hole, bottom out your already-damaged credit score, and put you in legal peril. So be careful. Debt settlement is risky business. Check into all your other options before you go there.
Is it better to settle or pay in full? ›
Paying a debt in full is better than settling a debt
You'll also save money. Settling the debt eliminates future interest and reduces the amount you'll repay to the lender. When you settle a debt, the creditor or debt collector will typically report the account as settled for less than what you owed.
How long do credit cards take to settle? ›
Settlement timeframes in credit card processing vary depending on various factors. The specific timeframe for settlement is typically agreed upon between the merchant and the payment processor and is usually outlined in the merchant agreement. Generally, settlement periods range from one to three business days.
What percentage should I offer to settle debt with a collection agency? ›
“Negotiating with a collection agency can be challenging, but it is vital to reach a fair settlement,” Raymond Quisumbing, a registered financial planner at Bizreport, said. “Offering 25%-50% of the total debt as a lump sum payment may be acceptable.
What is settlement risk in credit card? ›
Settlement Risk, often referred to as "Herstatt Risk" (named after the German bank whose failure led to its recognition), is the risk that one party in a transaction will deliver its side of the deal (either the payment or the security or other financial instrument being traded) but the counterparty will not.
While settling your debt may be a huge relief, you need to be prepared to pay taxes on the amount settled. Depending on the type of debt, your creditor may send you a 1099-C cancellation of debt tax notice. This information will be reported to the IRS, and you'll need to report it as "other income" on your tax return.
Can I get a loan after credit card settlement? ›
Settling a Credit Card debt can be a relief, but it might leave a lingering mark on your CIBIL score. A 'settled' status signals to lenders that you weren't able to repay the full amount due. This can impact your ability to obtain loans or credit in the future at competitive rates.
Does a settlement mess up your credit? ›
Debt settlement, when you pay a creditor less than you owe to close out a debt, will hurt your credit scores, but it's better than ignoring unpaid debt. It's worth exploring alternatives before seeking debt settlement.
What is the lowest a creditor will settle for? ›
Depending on the situation, debt settlement offers might range from 10% to 80% of what you owe.
How to clear credit card debt without paying? ›
Outside of bankruptcy or debt settlement, there are really no other ways to completely wipe away credit card debt without paying. Making minimum payments and slowly chipping away at the balance is the norm for most people in debt, and that may be the best option in many situations.
Should I accept a credit card settlement offer? ›
Debt Settlement Will Most Likely Hurt Your Credit Score
It's counterintuitive, but people with an initial high credit score suffer a greater drop on their credit score because of a debt settlement than people with a lower initial score. And the more you fall behind, the more your credit score will fall.
How long does it take to rebuild credit after debt settlement? ›
There is a high probability that you will be affected for a couple of months or even years after settling your debts. However, a debt settlement does not mean that your life needs to stop. You can begin rebuilding your credit score little by little. Your credit score will usually take between 6-24 months to improve.
Is settlement good for credit? ›
Generally, a loan settlement can bring down your score by 100 points or more. However, it's important to remember that your credit score is based on several factors, and over time, the impact of a settlement can lessen with a good payment history on other accounts.
