If you have a credit card and don’t pay your balance in full every month, you’re going to pay interest charges and possibly even incur late payments. With this in mind, it might be useful to look into a credit card debt settlement program if the obligation is overwhelming your finances.
Let’s take a look at how credit card settlement works.
What Is the Credit Card Settlement Process?
Also known as debt relief and debt negotiation, this is the process of recovering from credit card debt by working with a credit card relief company to negotiate a payoff deal for your financial obligation. However, there are a couple of other methods you should pursue before going this route.
Contact Your Credit Card Company
Contact your creditor on your own to work out a plan. Take some time to assess your financial situation so you can have an idea in hand of a workable offer you can make. The idea is to reach out to the credit card company and work out a plan that reduces your debt.
Worst-case scenario, your creditor will write off your debt if you don’t make any payments for 180 days. Your credit score will take a huge hit and you’ll still owe the amount, so always talk to them first. Even though this is likely to be an unpleasant experience, it’s what you have to do to begin renegotiating the terms of your debt agreement.
Take Advantage of a Credit Counselor
Credit counselors can help you if you have a tough time managing your money and credit card debt. They can help you make a budget, learn to manage money better, work to improve your credit score, and more. Credit counselors also provide a listening ear and offer solutions to your financial difficulties.
Enroll in a Debt Management Program
A debt management program, usually overseen by a credit counselor, helps individuals pay down large amounts of debt with a monthly payment plan. It typically reduces interest rates, helps you conserve funds for future needs, and allows you to repay your debt more rapidly. This is accomplished by working out a deal with your creditors to lower interest rates and sometimes even waive accrued fees. The counselor takes over payment of your bills and you’ll give them the money to do so each month.
How Credit Card Settlement Works
Credit card debt settlement is similar to debt management, with one key difference. Your debt settlement agency offers to tender your creditor a one-time payment in full of an agreed-upon amount — if they’ll consider the account paid in full.
You’ll deposit the monies you would have sent directly to your creditors in an escrow-like account from which these settlement payments will be made. This means you’ll have to wait for the balance of the account to grow large enough to satisfy an agreement, which in turn means it could be months before your creditor gets paid off.
However, this can work to your advantage, because the creditor will be more likely to negotiate when it looks like the debt is going bad. In the interim, you’ll be getting collection calls and your credit score will deteriorate. However, if you’re at the point at which credit card debt settlement is a viable option, those things have likely already happened.
Under a certain set of circumstances, this can be a viable option for debt relief. It’s worth considering if you have missed payments and don’t see any other way to satisfy the debt.