If you are someone who is struggling with your credit card debt, and finding if difficult to pay the monthly dues, you have probably heard of taking a settlement on your credit card.
Settlement of credit card debt is when you negotiate with the bank to waive off (write off) part of the outstanding due amount and you get to repay the remaining balance as a few part payments.
For instance, if your credit card total outstanding amount is Rs 1 lakh and your bank and you agree upon a settlement amount of Rs 75, 000 in three part payments. Then you will simply pay Rs 75,000 and the credit card amount will be settled and no dues will be pending. Sounds like a good idea? Not really. To know more, read on.
Why not to: Taking a settlement on your credit card, is not the smartest thing you can do. Surely, the amount that you have to pay to the bank is decreased substantially, but taking a settlement goes against you. “Your credit report will show “settlement”. This will affect your credit report and score in a negative manner and it will be very very difficult for you to get any further loans,” said VK Kulkarni, Chief Counselor, Abhay Credit Counseling Agency.
Almost, all lenders do their due diligence before offering credit to customers these days. Anyone who has a settlement taken on his credit report approaches a bank for a loan, the banks raise a red flag. After all, banks are here to make a profit, and no one wants to do business with a bad borrower.
When not to take a settlement: If you are below 45 years of age, taking a settlement on your credit card debt is a big mistake. Reason being, there are good number of years ahead of you and you might need to take a loan in the future. Having a settlement mentioned on your credit report, will seriously put you in a position of disadvantage.
When can you take a settlement: “Only when you have no options left, should you consider taking a settlement on your card debt,” Kulkarni said. This means, borrow from family or friends, may be take a low interest rate personal loan or loan against an asset to pay off a credit card debt. Taking a settlement should be your last resort.
But for those who have taken a settlement already, there is a way out. If you have funds, you can pay back the remaining amount plus the interest. This way your account will be “paid in full” and help your remove the “taken settlement” scar from your credit report, in turn improving your credit score.
End Note: You could be struggling to pay your credit card debt due to a number of reasons: job loss, sickness in the family or sheer carelessness. Whatever the reason, if you are in a position which is forcing your to take a settlement, we recommend you get in touch with debt counseling agencies. Their services are free.