Credit Card Debt Clearance: Your Options

Credit card debt settlement is an opportunity that you may be able to take when you’ve got long outstanding credit card debts where you don’t make the monthly payments.

What Is Cut-rate Debt Settlement?

On occasion, if a company can from its records see you have not paid anything for some time and they presume it really is unlikely that they will get the total amount of the debt plus interest from you, they will send you a discounted debt settlement offer.

This means that they’ll write with an offer where you can pay perhaps 50% for this debt and they will write off the rest. Usually they’ll want this all in one payment, but when it is a large amount they could accept it in two or three instalments. Frequently the letter will come from a debt collection agency. This could mean that your original lender has signed over the debt to debt collectors, or it might simply mean that the agency is working to get a percentage of whatever they can recover.

Why Do They Offer Debt Settlement?

The finance agencies offer this if they can see that you are having a great deal of trouble making payments, they may have to take you to court to obtain the whole amount, and maybe they would not even get it then, because you might declare bankruptcy.

So they have a choice between incurring the price of court proceedings and perhaps 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 through the courts.

What Should You Do?

Whether you need to accept the offer will depend on many factors.

First, try to be aware that accepting this can affect your credit score in a negative way, because you will not have paid off your whole debt. If you are able to pay the total amount then it is much better for your credit record if you do so. However, you probably 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 that 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 have to miss rent payments and perhaps lose your house? Think carefully about ways to raise the money.

Third, even if you decide to accept it may be worth trying to barter a lower settlement. This means calling them and saying that you can’t pay what they have asked for but you could pay 40% or whatever. This is often worth trying since it can save you some money without extra penalties.

When you call, write down the individual’s name that you speak to. If they accept your offer, ask them to place it in writing and wait for the letter to come before you pay. Then write a letter to send along with your check stating that this is full and final settlement of your debt, and ask them to write back acknowledging the debt has been paid.

Bear in mind that if you decide not to accept the offer, then after some time they could take the matter to court. A court may judge that you have to pay the whole amount plus the costs, so you’ll 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 really is full settlement and they will write off any additional debt, so they’ve got no right to come back to you in future demanding more.

When everything is complete, check out what has been posted to your credit record. If there is any mistake you should ask for it to be corrected immediately and you will need to send copies of your entire correspondence. So keep all paperwork whenever you accept any method of settling credit card debt.