Credit Card Debt Settlement

Credit Card Debt Settlement: The Pros and Cons

If you find yourself in a position where you can’t afford to make your credit card payments anymore, then a credit card debt settlement may be the most sensible option for you.

The past couple of years have been tough times for a lot of people. Thousands have lost their homes, lost their jobs and have even migrated out of state where the cost of living is more affordable. Most people in this situation have no choice but to stop making credit card payments because they simply don’t have the money.

So what happens in a situation like this? If you’re buried in credit card debt, then you typically have the following three choices:

1. Negotiate a credit card debt settlement
2. Work out a repayment plan
3. File for bankruptcy

One other option not listed here is to follow a strict debt reduction program. You can either do this on your own, or use the help of a debt reduction service such as DebtGoal.

Credit Card Debt Settlement

Sometimes you can be so deep in debt with the credit cards, it’s unlikely that you will ever be able to dig yourself out of it just by making the minimum payments. I’ve found myself in this situation more than once in my lifetime. The first time, I was about $60,000 in credit card debt. My monthly payments to all of the credit card companies combined was over $1,000 and that was just the minimum payment for each one.

At the time, I decided to use a local company who specialized in credit card debt settlement. There are a bunch of companies out there who do this. You can even do it yourself, in fact it’s easier now that ever because the banks know that so many people are in over their heads. (A quick side note on this; I currently have a card which I could no longer afford to keep paying, and it was passed along to a collection agency. They ended up calling me and offering a settlement for about half of what I owed. I didn’t even have to negotiate. They just offered it up.)

I ended up settling all this credit card debt for about half of the total balances, but for this to work I had to stop paying, which impacted my credit.

Something else to consider is that once the credit card debt settlement is reached, you would typically have to come  up with the total amount agreed upon and then pay it immediately. So I borrowed it from a friend and ended up spending the next 4 years paying it back. But at the end of this ordeal, it felt great, because I was debt free.

The negative impact of this credit card settlement was that my credit was shot and it took years before it normalized. Once you settle a credit card debt for less that the full balance, that is how it is reported to the credit agencies. It will show on your credit as a chargeoff or a settlement. Of course, you could always Repair Your Credit using a credit repair service who will work with you and the reporting agencies to clean up your credit.

So a credit card debt settlement may be the answer for you. A chargeoff or settlement on your credit is not a serious as say, a bankruptcy.

Credit Card Debt Settlement: Repayment Plan

The second option you have is to agree on a special repayment plan with the credit card companies. Many of them, especially now, will be open to this. I had one card which I owed a fairly large amount on, and the interest rate was especially high. This particular card issuer already had a repayment program in place. Sometimes all you have to do is call up and politely explain that you are experiencing some financial challenges and is there any way  they can help you make your payments. I did this and was offered a huge interest rate reduction, just by asking. This saved  me thousands of dollars in potential interest rate payments.

Aside from  these two options, which include a credit card debt settlement, or credit card repayment plan, you can also take a more extreme choice and file for bankruptcy. Of course, always consult with a trained professional in this area so you can receive knowledgeable advice.

Tagged as: Credit Card Debt Settlement, Credit Card Tips, Manage Credit Card Debt