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HomeMoneyCredit CardsHow to settle your credit card debt

How to settle your credit card debt

When you are swimming in a credit card debt and feeling like there’s no option for you, look for settlement options online. Credit card debt settlement might be an excellent option to lower the debt amount with your creditors.

Instead of paying the full amount, creditors agree to lessen the amount. This amount is known as ‘settlement,’ and it is paid in several ways. If you have a debt for a long enough time and keep getting calls from collectors, this is the easiest method to settle your finances.

What is a Credit Card Debt Settlement?

This practice allows you to pay a lump sum that is typically less than the exact amount you owe to resolve your debts. This service is provided by third-party companies who perform the negotiation of a settlement with your creditors.

The settlement companies are also known as “debt relief” or “debt adjusting” companies. They offer to contact the creditors to negotiate the best suitable offer payment plan on your behalf. They charge you a fee which is a percentage of the amount you would save on your debt after settlement. While doing so, you are required to make regular deposits into a savings account administered by a third-party. This account will be used towards a lump payment for the creditors.

Meanwhile, they may request you to stop paying until an agreement is reached with your creditors. Once both parties have a deal, you must make one payment for the settled amount. Now, you will have to pay off the debt settlement company for their services.

However, stopping monthly payments can have a consequence in your credit card account balance, including interest charged and late penalties.

How Does It Work

The first step is to see if you wish to hire a company or lawyer for credit card debt settlement and negotiate an agreement. The purpose here is to lessen the amount you pay. Now meet the lender to request for settlement. If the account is more than five months overdue, it likely gets transferred to a collection agency. Typically it would take three years at least to save enough money to make an offer. Be patient while making an offer to creditors. After he accepts, get it in writing. Request the creditor to send the major credit bureaus notice that the debt has been settled.

In general, debt settlement companies may charge 15% of the amount owed or 25% of the amount saved. If you hire a lawyer, they may charge an hourly rate or standard fee. There also are other taxes owed to the IRS on the amount forgiven.

Final Thoughts

There are many benefits of settlement as it can prevent you from being sued or having a court judgment go against you. It is the best option to solve your credit card debt and keep you from having to file for bankruptcy.

Debt settlement companies might reduce the debt amount, but still, there is no guarantee. Before going for any similar program, consider contacting the state attorney general and consumer protection agency to check any complaints. You may find it as a better option to work out.

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