Credit Card Settlement - Is It Right For You?

We all get overwhelmed sometimes with too many bills and not enough cash.  When we find ourselves in these situations we’ll often turn to credit lines to help bail us out.  Sometimes that can lead to a downward spiral – more bills, and still not enough cash.

If you’re in a situation where you’re having trouble making even the minimum payments on your credit cards, a credit card settlement might be the solution.

What is a credit card settlement?

Basically, a credit card settlement is just what it sounds like.  You negotiate with your creditors with a goal toward reaching a settlement as to how much you will pay.  Obviously, you want to find a way to pay less than you owe.  This is different than credit card consolidations, where you combine all of your credit card lines in to one consolidated loan.  This approach can offer savings as well.

What can I hope to achieve?

Credit card settlement sounds like a good deal, doesn’t it?  Talk to the company, let them know you’re down on your luck, and wind up paying less than you owe.  That sounds great!

Well, it’s not that easy. 

• First, credit card companies want to get their money back.  Period.  So their first choice for a credit card settlement might be to extend your payment schedule.  In other words, you will be paying less every month, but it will be for a longer period of time.  You might even wind up paying more in the long run. 
• Second, be aware that credit card companies generally will not reduce the amount that you’ve actually charged on your cards.  A settlement directly with a credit card issuer might address costs for late fees, transaction fees and the like – if you’re lucky.  So, for example, if you’re carrying a $1,000 balance for purchases and, after several months of lack of payment you’ve accrued $300 in finance charges, the credit card issuer is more likely to look at a settlement on the finance charges, as opposed to the balance.
• Finally, the credit card issuer has to be convinced that you are truly in financial difficulties before they agree to take less than what you owe.  You will need to demonstrate that you have liquidated any available assets and tapped all sources of income.  While the issuer does not want to run the risk of you declaring bankruptcy (in which case they will receive much less of their cash back), they do need to know that you’re not just trying to save a little money.

When should I consider credit card settlement?

If you’ve already missed some payments and it doesn’t look like things are going to turn around soon, don’t ignore the problem.  Contact your credit card issuer right away and ask what options might be available for you.  Look to a site like the Credit Info Center for ideas on how to approach your lenders.  They offer valuable resources for those looking to reach settlements on their own.

If your debt has already been sold to a debt collector, don’t despair!  You can still reach a credit card settlement.   As the Credit Info Center site notes:

You have the natural advantage in debt settlement, because you have something the creditor wants. Don't cave in when they first tell you no. Maintain calm. Don't lose it and get angry. It's usually best to correspond with them via letters, so you have a paper trail of all your actions. Keep the attitude at all times that the collection agency will take less money then they say they will.  (Source:  Credit Info Center)

If you run in to trouble with your credit cards, bankruptcy (and the negative lasting effects) isn’t the only solution.  A credit card settlement might be as easy as a phone call or e-mail away!