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How does Credit Card Settlement Work?

Abhijit Naik Jan 11, 2019
If credit card debt has put you on toes of late, here is some information on the settlement process that will come handy for you. A must read considering that most of us use credit cards nowadays and have a high propensity of spending, something that we realize only when we get our credit card statement.
Credit card debt settlement can be a tedious task, especially in the middle of a financial crisis. When we start using a credit card, most of us don't foresee this problem. It's only when we see our credit card statement, that we realize that we are in trouble. Thus starts our desperate search for debt settlement strategies to pull us out of this situation.

Credit Card Settlement

Here, the debtor or consumer agrees to pay a stipulated amount, which is less than what he owes to the company, in full. This is done when the debtor has a specific amount of money with him and he is willing to pay it, if the creditor agrees to settle the whole debt in lieu of this amount.
So what's there for the credit card companies in this deal? Well, they live by the 'something is better than nothing' philosophy. While they know that they won't get the entire amount, there is a hope that they will at least recover a part of it, and therefore, they go ahead with the settlement process.
Both sides try to negotiate and come to an agreement. Most of the debt settlement cases that get a green signal from the companies involve debtors on the verge of bankruptcy. In the end, the debtor is relieved that he has paid his outstanding debt, while the creditor is satisfied that he has at least recovered a substantial part of the outstanding amount.

Negotiate Credit Card Debt Settlement

The settlement process is not as easy. For a mutual agreement, the creditor and debtor need to negotiate. The company will only agree to negotiate credit card payoff when they feel that the chances of recovering the entire amount are dull.
You can initiate settlement either by writing a letter to the concerned person, talking to him on the phone, or meeting him in person. You will have to be well prepared before you initiate the process though. More importantly, you should never use foul language when communicating with anyone from the credit card company.
A customer care representative doesn't have the authority to grant you a debt settlement offer, so you will have to contact a superior or the person in charge of settlement. Being rude will hamper your chances of sealing the credit card debt settlement deal while being on good terms with the company representative will add to the chances of sealing the deal.
Note: If and when the company agrees, make sure that you have the written agreement in your hand before you make any payment.

Credit Card Debt Settlement Letter

A debt settlement letter is a formal request by the debtor to the creditor―the credit card company in this case―initiating the settlement process. In this letter, the debtor proposes a mutual deal wherein he agrees to pay a part of the outstanding debt as payment in full. In simple words, this letter is a debt settlement offer initiated by the consumer.
Your name, account number, existing balance, paid amount, and the settlement amount should be clearly mentioned in it. You can also take the help of an attorney who is familiar with the legal implications of the matter, to write the letter on your behalf.
When you opt for debt settlement, the creditor is allowed to make a note stating settled for less than full amount in your credit report. This can turn out to be a blot on your financial profile. So, when it comes to debt management, opting for a debt settlement should be your last resort. Instead, opting for interest rate negotiation is a wise way out.