What is credit card settlement, and how does it work?

Credit cards, when used wisely, work in favor of your finances. To ensure maximum benefits, you must ensure that your credit card usage aligns with what you can afford. However, if you find yourself with significant outstanding debt, consider credit card settlement as a last-resort measure.

What is a credit card settlement?

A credit card settlement means that you enter an agreement with your card provider to pay off a lesser amount against the outstanding balance. It is a tactic employed when keeping up with credit card dues becomes challenging. This might happen due to a sudden emergency requiring long-term financing or reckless spending. Credit card dues can multiply every month, causing severe financial stress. Most banks and debt settlement agencies may offer a settlement in such situations. You might be advised to set aside a lump sum and offer it in exchange for a complete waiver or to appeal for a settlement. Credit card payment settlements are rare and not generally encouraged by issuers.

Does the credit card settlement process affect your credit rating?

Yes, credit card debt settlements can severely damage your credit score, almost as much as filing for bankruptcy. It's because your credit history will record a settlement as a black mark that can last up to 7 years, impacting subsequent loan applications.

What is the credit card settlement process?

To initiate a settlement, visit the issuer or a debt settlement agency. Explain your inability to make payments through a credit card settlement letter and state that you’re open to negotiating other terms. You may need to offer a lump sum or inform the issuer of your plans to potentially file for bankruptcy. If the issuer approves, they may offer a repayment plan based on your current income or grant a temporary forbearance agreement.

Is credit card settlement a good idea?

Typically, it's advised to avoid settlements because of their impact on your credit score. However, if it's your only option, knowing how to negotiate effectively yourself can help avoid excessive fees from debt settlement agencies. Always ensure you spend within your means with your credit card and clear bills promptly. Consider credit cards like the Bajaj Finserv RBL Bank SuperCard, which allows payment through various channels and offers rewards that make managing finances easier while providing savings up to Rs. 55,000 annually. Apply online for quick approval if interested.

Always consult a financial advisor before opting for a settlement, and ensure it is absolutely necessary before proceeding.