Credit Card Settlement: Freeing Consumers from the Chains of Debt

An increasing number of credit cardholders who have racked up a sizeable credit debt and are struggling to meet their financial obligations are obtaining relief through credit settlement. This payment strategy is one of the fastest-growing because it saves consumers money and enables them to become debt-free as inexpensively and quickly as practicable. Even though this debt management option is typically one of last resort, borrowers should contact their creditor to negotiate a credit card settlement, as soon as they find themselves floundering in debt.

In a credit card debt settlement, an agreement is worked out with a credit card company to settle the outstanding debt for less than the full amount owed to it. One might wonder why a lender would accept a smaller amount than what is owed. The majority of individuals to whom a credit settlement is extended are on the brink of bankruptcy. In view of the fact that credit cards are unsecured, bankruptcy precludes any payment to lenders since it discharges a consumer's debts. Consequently, a credit card company can avoid such a situation by accepting a settlement amount and at least benefit from a percentage of the outstanding debt paid by the debtor.

Credit settlement works as follows:

1. The borrower contacts the credit card company and explains that he or she is experiencing difficulty with debt repayment.
2. The debtor then informs the lender that he or she will pay a lump sum if the latter agrees to a credit card settlement.
3. Next, the debtor proposes the sum of money that he is willing to pay, informing the credit card company that there are no additional resources at his or her disposal.
4. The credit card company decides to accept or reject the credit card debt settlement.
5. If it agrees to it, the debtor should request a written confirmation of the acceptance.

Although compromise amounts offered by creditors vary, they usually comprise 30 to 50% of the original outstanding debt. When considering credit settlement, lenders examine the following factors:

1. Payment history
2. Financial hardship that is confronting a cardholder and interfering with his or her ability to pay off the debt
3. The debtor's lack of assets (i.e., home or car)

Ideal candidates for credit card settlement include those finding themselves in the following straits:

• An outstanding credit card debt of at least $10,000
• Inability to envision a way out of their indebtedness
• Incapacity to pay the minimum monthly credit card payments
• Default on numerous monthly payments
• Expectation to file for bankruptcy, if all else fails
• Financial, medical or personal hardships

The main benefits of a credit settlement are as follows:

• Lower monthly credit card payments
• A compromise amount that debtors themselves approved and are able to pay
• Significant reduction or elimination of interest, fees and finance charges
• Avoidance of bankruptcy
• Considerable debt reduction or elimination of credit card debt.

Credit card debt settlement enables borrowers to liberate themselves from the chains of credit card debt in as quickly as 2 to 3 years. In the event that cardholders choose to enlist the help of a consumer credit counseling service (CCCS), they would have to wait 5 to 9 years to reduce or eliminate their debt. Furthermore, a consumer credit counseling service can only lower their interest rate.