Credit Card Debt Resolution: Your Solutions

October 6th, 2010 | Posted in Debt Relief

Credit card debt settlement can be an option you could possibly take if you have long outstanding credit card debts where you are not making the monthly payments.

What Is Discounted Debt Settlement?

Sometimes, 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’re going to get the full amount of the debt plus interest from you, they will send you a discounted debt settlement offer.

This means that they will write with a proposal where you possibly can pay perhaps 50% on the debt and they’re going to write off the rest. Usually they will 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 may mean your original lender has signed over the debt to debt collectors, or it might simply mean that the agency is working for a percentage of whatever they can recover.

Why Do They Propose Debt Settlement?

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

So they’ve got a choice between incurring the cost of court proceedings and maybe 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 full amount through the courts.

What Should You Do?

Whether you ought to accept the offer depends upon many factors.

First, you have to be aware that accepting this will affect your credit score in a negative way, because you won’t have paid off your whole debt. If it is possible to pay the full 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 usually better than having court actions against you.

Second, you need to consider how you can make the payment they want. Does it mean that other debts will go unpaid for a couple of months? What’s going to be the implications of that? Would you have to miss rent payments and maybe lose your property? Consider carefully about how you can 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.

If you call, write down the person’s name you speak to. If they accept your offer, ask them to put it in writing and watch for the letter to come before you pay. Then write a letter to send along 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 is paid.

Be aware that if you decide not to accept the offer, then after a while they could take the matter to court. A court may judge that you have to pay the whole amount plus the costs, so you would have much more to pay.

If you decide to accept, always read the small print on any offer. You must be sure this really is full settlement and they’re going to write off any additional debt, so they’ve got no right to revisit you in future demanding more.

When everything is complete, check out what is posted to your credit record. If there’s any mistake you should ask for it to get corrected immediately and you need to send copies of all your correspondence. So keep all of the paperwork when you accept any method of settling credit card debt.