Settling Credit Card Debt: 3 Methods To Debt Relief
Settling credit card debt can be an option that you may be able to take when you've
got long outstanding credit card debts where you are not making the monthly payments.
What Is Cut-rate Debt Settlement?
Every now and then, if a company can from its records see you have not paid anything for some time and they figure it is not likely that they are going to get the full amount of the debt plus interest from you, they will send you a reduced debt settlement offer.
This means for
settling credit card debt that they may write with an offer where you can pay perhaps 50% on the debt and they'll write off the rest. Usually they will want this all in one payment, but if it is a large amount they may accept it in two or three instalments. Frequently the letter will come from a debt collection agency. This can mean your original lender has signed over the debt to debt collectors, or it might simply mean that the agency is working for a percentage of whatever they can recover.
Why Do They Propose Debt Settlement?
The finance companies offer this if they can see that you're having so much trouble making payments, they might have to take you to court to acquire the whole amount, and perhaps they wouldn't even get it then, because you might declare bankruptcy.
So they have a choice between incurring the cost of court proceedings and maybe still getting nothing from you, or offering you this deal where you pay 50% or whatever. They figure they will be better off accepting half of what you owe, than attempting to get the total amount with the courts.
What Should You Do?
Whether you need to accept the offer relies on many factors.
First, you have to be aware that accepting this will likely affect your credit score in a negative way, because you will not have paid off your whole debt. If you can pay the full amount then it is much better on your credit record if you do so. However, you most likely would not have gotten to the point of receiving a settlement offer if you could pay in full. Accepting the settlement offer is generally better than having court actions against you.
Second, you will need to consider how you can make the payment they want. Does it mean that other debts will go unpaid for a couple of months? What is going to be the implications of that? Would you now miss rent payments and perhaps lose your house? Think carefully about ways to raise the money.
Third, even when you decide to accept it may be worth trying to negotiate a lower settlement. This means calling them and saying that you can not pay what they've asked for but you can pay 40% or whatever. This is often worth trying because it can save you some money without extra penalties.
Whenever you call, write down the individual's name you speak to. If they accept your offer, ask them to place it in writing and watch for the letter to come before you pay. Then write a letter to send along with your check stating that this is now full and final settlement of the debt, and ask them to write back acknowledging the debt has been paid.
Be aware that if you choose not to accept the offer, then after some time they could take the matter to court. A court may judge that you need to pay the entire amount plus the costs, so you would have a lot more to pay.
If you decide to accept, always read the small print on any offer. You have to be sure this is now full settlement and they will write off any additional debt, so they've got no right to revisit you in future demanding more.
When everything is complete, check out what is posted to your credit record. If there is any mistake you should ask for it to get corrected quickly and you will want to send copies of all your correspondence. So keep all paperwork when you accept any method of settling credit card debt.
Settling Credit Card Debt: 3 Methods To Debt Relief
By: Charles Calvert
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