While credit card has emerged to be one of the most accessible means to get the ‘unaffordable’, it comes with its own ‘cost’. To maximise the financial benefits of a credit card, it is crucial to regulate credit card spending in accordance with your personal affordability. However, despite best efforts, avoiding credit card debt becomes impossible at times. Therefore, it is imperative to know about the means to get out of the credit card debt by paying as little as possible through a smooth settlement process. Read along to find out the details.
Credit Card Debt Settlement Process
Credit card debt settlement takes place when the cardholder proposes to pay a portion of the credit card debt, generally in a lump sum one-time payment, and the creditor accepts it. The credit card issuing company agrees to forgo a part of the payable amount due to two possible reasons.
1. The creditor fears that you will not be able to pay the
total debt amount back.
2. The creditor is in desperate need of cash.
When the credit card holder realises they cannot pay the entire outstanding bill amount, they reach out to the credit card company and explain their inability to pay the bill. First, they have to convince the credit card issuing company of the genuineness of their reason for non-payment; only then the company agrees to a debt settlement.
Finally, when the credit card issuing company is satisfied with the debtor’s reasons, both parties sit down for negotiation regarding the one-time settlement. Alternatively, the creditor company can extend the repayment duration to allow the credit card holder some more time. However, the latter happens in extremely rare cases; hence, most people have to go with the one-time settlement procedure.
Different Ways of Credit Card Debt Settlement
There are generally two types of debt settlement that you can opt for. The first can be deemed a ‘DIY’ debt settlement wherein you negotiate the terms of the settlement with the bank on your own. Alternatively, you can opt for a professional debt settlement where the debtor usually hires a debt settlement agent who manages the debt reduction strategy in their place.
Credit card debt settlement is a complex process that involves smart negotiation, a lot of paperwork and more. Therefore, you should ideally take the help of a professional credit card settlement agency since they are skilled in this business and can make the whole process smoother for you. However, this concept is still new in India, and there are only a few agencies that offer credit card debt settlement services. Freed is India’s first Consumer Debt Relief Company that helps debt-burdened consumers get debt-free and achieve financial freedom.
The Effect of Credit Card Settlement on the Credit Score
A credit card debt settlement affects your credit score adversely. It is, in fact, very similar to declaring bankruptcy. The ‘settled’ credit card accounts are notified to the Credit Information Bureau of India Limited (CIBIL), and the organisation deems it bad credit behaviour. Therefore, finance professionals suggest that you should plan your spending from the credit card in a way that it doesn’t land you in a settlement situation. If at all you are unable to pay your credit card bills, a settlement should be the last resort.
Final Words
Hence, it is a prudent idea to apply for credit cards only when you have good financial discipline. Regular credit card bill payments can save you from the hassles of settlement and can also help you maintain a good credit score. In case you find yourself in a ‘settlement fit’, feel free to reach out to our skilled debt counsellors who can help you combat the situation effectively.
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