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What is meant by credit card settlement

What is the Credit Card settlement process?

When you get a brand new credit card, it is natural to think that you must be very excited to use it. Credit cards nowadays come with various features, exclusive rewards, cashback offers and much more. However, while using a credit card, one of the most important things that you should always remember is that you can spend your card wisely.

You may ask why you are being warned to use your credit card. That is because overusing the credit card can pose potential drawbacks to you in the long run. While using your credit card, always remember that you will have to pay back the credited amount on time. Not doing so could eventually put you into a heap of debt, and you may even have to go for a credit card settlement.

Here’s everything to know about the credit card settlement process.

What is the credit card settlement process?

Here are the steps on how to approach your credit card settlement:

    1. Visit a debt settlement agency or your credit card issuing bank/lender
    2. Explain how you cannot repay the credit card debt anymore and provide a credit card settlement letter
    3. Do remember to mention that you are willing to explore other terms of repayment for the credit
    4. You can either offer a lump sum payment in exchange for the debt being waved off, or you will have to file for bankruptcy
    5. Your issuer might accept or even deny your credit settlement. In case they do, which is rare, you can be offered a repayment plan that is more in sync with your current income.

Read more: What are the advantages and disadvantages of a credit card?

How does the credit card settlement work?

A credit card settlement is basically an agreement between a credit card user and a credit card issuing bank/lender when the user finds it very difficult to pay back the credit card dues on time. There can be many reasons why the user is unable to pay back the credit. The credit card settlement is a method to get out of this rapidly multiplying credit debt.

The settlement is usually proposed by the bank or debt settlement organisations, where the user is asked to provide a lump sum amount or request for settling the debt. However, you should remember that credit card settlement is extremely rare and credit card issuing banks/lenders never encourage this process. The chances of the banks/lenders agreeing to a credit card settlement are also very low. 

Read more: Which are the best credit cards for beginners in India?

Does the credit card settlement affect my credit score rating?

Yes, a credit card settlement will definitely affect your credit score, very badly. To help you understand, a credit card settlement basically goes on to show that you have not been a responsible user of credit, and the situation has come to a point where you can no longer repay it.

Applying for a credit card settlement is the equivalent of applying for bankruptcy. Therefore, it will destroy your chances of getting any form of credit, in the near future. Credit settlements are seen as a black dot on your credit report, and it can take up to or even more than 7 years to recover from it.

Read more: How to improve your credit score – a complete guide

What are the pros of applying for a credit card settlement?

Applying for a credit card settlement should always be the final straw for anyone who is no longer able to repay the credit card bills. That is because it instantly makes your credit score very low. Moreover, it is also extremely rare that credit card settlements get accepted. Regardless, there are a few pros of applying for a credit card settlement:

  • Provides immediate financial relief 
  • You will stop receiving repeated calls from your bank/lender about repayment of your credit card bills
  • Credit card settlement can help you keep your assets such as your home or car

At the end of the day, credit card settlements should always be avoided, as much as possible. Whenever you apply for a credit card, always remember that the purchases you make are on credit and there will be a bill that you have to pay.

Use your credit card wisely, in all aspects of life, and there will never be a situation where you have to depend on a credit card settlement process to reduce your financial burden.