Credit card debt settlement is for people who are in debt to credit card companies and have stopped making payments. They also cannot afford the cost of the payments for a Debt Management Plan.
Debt settlement is about looking at your budget and realistically assessing how much money you can afford to pay into a special account (a settlement deposit account) every month over and above your basic necessities such as rent, mortgage, food, utilities, medical bills etc.
Whilst that account is growing, a credit card debt settlement company negotiates with your creditor or creditors to reduce the amount of your debt, so it can be paid using the money in your settlement deposit account.
It is an alternative to the last resort, which is bankruptcy. Everybody wants to avoid this, because of its long-term and punitive repercussions. Credit card debt settlement sounds like a great option, but like all negotiated settlements it has pros and cons.
On the positive side, credit card debt settlement is usually completed in about 3 to 5 years, and obviously your debt will have been reduced by a large amount. Because it is negotiated by a third party, your arrangements for making payments (and the amounts) are flexible, which means that if necessary at some point in the future they can be adjusted.
Lastly, you have already worked out that you can afford the payments you make into your settlement deposit account, so you are not being forced to do something that is beyond your financial capacity, so your stress is greatly reduced.
On the negative side, you might be liable to pay tax on that part of your debt you have not paid back, so you may have to find that money somewhere in your budget. Obviously your debt is not paid in full, so your credit profile will be affected negatively. It can take up to about 6 months before your first settlement is paid, which means you might be vulnerable to collection agencies harassing you.
Also, in this period your debt balance may increase because of interest and even late fees. There is also the fact that creditors are not obliged to accept any settlement that a third party attempts to negotiate for you.
If you are considering credit card debt settlement, make sure you have understood all the terms, and all the ramifications of what is being offered by a third party before you make a decision. Never decide impulsively, and never let yourself be bullied into accepting a contract with a credit card debt settlement company (especially over the phone!) until you thoroughly understand everything about that contract, and have done research into the company itself to make sure they are reputable.
Always look at all your options and the pros and cons of each and be realistic about your finances and your budget before you make your decision. You want this decision to be a solution for you, and not something that comes back to bite you in the ankle, or creates more debt for you!
