Saving Money through Credit Card Debt Settlement

A debt settlement is a way to resolve your credit card problems and save money. Before you contact your bank, however, you have to prepare certain documents as to increase your chances of success. These include letters from creditors that offer you a debt settlement along with a copy of a recent bill. You also have to decide how much you can afford to pay, either in the form of monthly payments or as a lump sum.

How can you save money from a favorable debt settlement? The goal of the settlement procedure is to reduce your payments to a more manageable amount. As a borrower, you want all over the limit fees, finance charges, and late fees to be waived. You may be surprised, but these add up to up to forty percent of the outstanding balance. If your creditor is willing to settle within this range, then you may want to consider the offer. Under this scenario, and you are likely to receive a settlement letter in a couple of weeks. You may find waiting stressful, but this will ultimately save you a good amount of money in the end.

Credit card settlement is not as easy, however, and you should be prepared for a series of phone calls. Moreover, there are different ways to go about this, and you should carefully assess your options. If you choose a lump-sum settlement, then you have access to money and will negotiate for less than what you owe. The impact on your score is similar to that of a charge-off. If you choose a workout arrangement, your bank will lower your interest rate, ceasing to assess punitive fees. At the same time, your line of credit may be cut, which means that you cannot use
your card. How this arrangement affects your credit depends on the way your institution reports your payments or the arrangement to the credit bureaus. Cutting your line of credit is going to ding your score. Your credit score will improve only if the card issuer reports that you are making your payments in full and on time.

Generating profit is a key priority of credit card companies. So, why would they be willing to settle? There is a shift of priorities taking place when it is evident that a borrower cannot pay their outstanding balance. The card company or bank is then more concerned with getting back as much of the money as possible and restricting or closing the card account. This is how credit card debt settlement works to your benefit.

Keep in mind that creditors will be unwilling to settle unless you stop making payments on your cards. You can get them to this point, but this will, in effect, wreck your credit score. Not only that, but you may start receiving calls from collection agencies and will incur penalties. This route to debt settlement is not recommended and in fact, it does not guarantee that the issuer will be willing to accept a settlement.

How to get the most out of a settlement? Do not forget to obtain a letter from the credit card issuer, which states the agreed upon amount. This should go without saying, but a verbal agreement is not sufficient, meaning it will be your word against the credit card issuer. Know your rights as a customer as well or collectors may try to intimidate you.

Finally, one way to go about debt settlement is to use the services of a certified credit counselor. An expert in the field will review your financial situation and come up with a customized action plan. The counselor will also come up with a workout agreement for your debt management plan. Note that credit counseling should be low cost or free-of-charge, and it should not affect your credit score.