A credit card settlement process occurs when your card provider allows you to settle your total outstanding balance at a reduced amount due to certain reason. This financial solution is not the best for cardholders because it affects their credit score. Let’s take a closer look on the information below:
A debt which is settled rather than paid in full will be updated as “settled” on the debtors’ credit reports. The indication doesn’t look good in the point of view of the lenders. It will make your loan application more difficult because new lenders may lose trust on you when they go through your credit file. As a result, you are reminded to take precaution step before the settlement. You are advised to negotiate with your creditor to report your settlement as “paid” rather than “settled”.
In general, a credit card company or bank will not agree with your settlement proposal if you still make your minimum repayment monthly. Making minimum payment regularly shows that you have a good payment history. Hence, you are not qualified for settlement.
The best time to negotiate for settlement is when you miss your payment within the duration of 3-6 months. Start negotiating with your creditor for settlement within this period. Do not drag too long because the creditors may decide to write off your debt. Once it is written off, you don’t have any chance for debt reduction.
Most of the creditors agree to accept settlement offers if they are paid in one lump sum. If you are aiming for successful debt settlement, make sure you don’t propose to settle your debts by monthly installment. It will be rejected by creditors.
Nowadays, due to bad economy, there are more credit card companies which are willing to accept settlement proposals. They prefer their debtors to settle the outstanding at a lesser amount rather than declaring bankruptcy.