Credit card debt settlement can be an option you could possibly take for people with long outstanding credit card debts where you don’t make the monthly payments.
What Is Discounted Debt Settlement?
Every so often, if a company can from its records see that you have not paid anything for a while and they think its not likely that they’re going to get the total amount of the debt plus interest from you, they will send you a reduced debt settlement offer.
This means that they may write with an offer where you possibly can pay perhaps 50% on the debt and they’ll write off the rest. Usually they’ll want this all in one payment, but if it is a large amount they could accept it in two or three instalments. Often the letter will come from a debt collection agency. This can mean your original lender has signed over the debt to debt collectors, or it could simply mean that the agency is working to get a percentage of whatever they can recover.
Why Do They Suggest Debt Settlement?
The finance agencies offer this after they can see that you are having so much trouble making payments, they might have to take you to court to get the entire amount, and perhaps they would not even get it then, because you might declare bankruptcy.
So they have a choice between incurring the cost of court proceedings and perhaps still getting nothing from you, or offering you this deal where you pay 50% or whatever. They figure they are better off accepting half of what you owe, than trying to get the total amount through the courts.
What Should You Do?
Whether you ought to accept the offer is determined by many factors.
First, you should be aware that accepting this can affect your credit score in a negative way, because you won’t have paid off your whole debt. If you possibly can pay the total amount then it is better for your credit record if you do so. However, you most likely wouldn’t have gotten to the point of receiving a settlement offer if you could possibly pay in full. Accepting the settlement offer is generally better than having court actions against you.
Second, you’ll need to think about 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 consequences of that? Would you now miss rent payments and perhaps lose your property? Consider carefully about how you can raise the money.
Third, even if you choose to accept it might be worth trying to barter a lower settlement. This means calling them and saying that you cannot pay what they’ve asked for but you could possibly pay 40% or whatever. This is often worth trying because it can save you some money without extra penalties.
Whenever you call, write down whomever’s name you speak to. If they accept your offer, ask them to put it in writing and wait for the letter to come before you pay. Then write a letter to send with your check stating that this is now full and final settlement of the debt, and ask them to write back acknowledging that the debt has been paid.
Be aware that if you choose 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 entire amount plus the costs, so you’ll have much more to pay.
If you choose to accept, always read the small print on any offer. You need to be sure this is full settlement and they’ll write off any additional debt, so they have no right to come back to you in future demanding more.
When everything is complete, look at what has been posted to your credit record. If there is any mistake you should ask for it to get corrected immediately and you’ll need to send copies of all of your correspondence. So keep all of the paperwork if you accept any method of credit card debt settlement.