Credit card debt settlement can be an alternative that you might be able to take for those who have long outstanding credit card debts where you don’t make the monthly payments.

What Is Cut-rate Debt Settlement?

Sometimes, if a company can from its records see that you have not paid anything for a while and they figure it’s not likely that they are going to get the total amount of the debt plus interest from you, they will send you a discounted debt settlement offer.

This means that they’ll write with a proposal where you possibly can pay perhaps 50% of the debt and they’ll write off the rest. Usually they will want this all in one payment, but if it is a large amount they might accept it in two or three instalments. Frequently the letter will come from a debt collection agency. This could mean that your original lender has signed over the debt to the debt collectors, or it may simply mean that the agency is working for a percentage of whatever they can recover.

Why Do They Suggest Debt Settlement?

The finance companies offer this when they can see that you are having so much trouble making payments, they might have to take you to court to obtain the entire amount, and maybe they would not even get it then, since you might declare bankruptcy.

So they’ve got 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 attempting to get the total amount through the courts.

What Should You Do?

Whether you ought to accept the offer is dependent upon many factors.

First, you need to be aware that accepting this can affect your credit score in a negative way, because you will not have paid off your whole debt. If you are able to pay the total amount then it is better on your credit record if you do so. However, you probably wouldn’t have gotten to the point of receiving a settlement offer if you could possibly pay in full. Accepting the settlement offer is normally better than having court actions against you.

Second, you will 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 will be the implications of that? Would you now miss rent payments and perhaps lose your home? Think carefully about ways to raise the money.

Third, even if you decide to accept it could be worth trying to barter a lower settlement. This means calling them and saying that you can not pay what they’ve asked for but you could possibly 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 individual’s name that you speak to. If they accept your offer, ask them to place it in writing and wait for the letter to come before you pay. Then write a letter to send along with your check stating that this is full and final settlement of the debt, and ask them to write back acknowledging that the debt is paid.

Remember that if you decide not to accept the offer, then after some time they might take the matter to court. A court may judge that you are required to pay the entire amount plus the costs, so you would have a lot more to pay.

If you decide to accept, always read the small print on any offer. You have to be sure this really is full settlement and they’ll 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 is any mistake you should ask for it to get corrected right away and you will need to send copies of your entire correspondence. So keep all the paperwork when you accept any method of settling credit card debt.

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This entry was posted on Saturday, August 28th, 2010 at 4:17 am and is filed under Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.