Credit Card Settlement Process Explained


Authored by Carly Hart in Credit Card
Published on 09-20-2009

Sometimes when consumers fall behind in their credit card payments to the point of delinquency, credit card companies will contact them to work out a credit card settlement. This means that the credit card company or its agent contacts the consumer whether by mail or phone in an attempt to settle the credit card debt for less than the amount owed. Consumers who are meeting just the minimum payments each month will likely not see such offers hitting their mailboxes. Instead, the bulk of these settlement offers are reserved for those individuals no longer making regular payments.

If a credit card company does make contact to discuss a settlement option, there are a few things that a consumer should be aware of before committing to a new payment schedule. First of all, a credit card settlement will negatively affect credit, much the same that a bankruptcy would. Though different credit card companies use a multitude of language to denote a credit card settlement on a card holder’s credit report, the effect is the same. Accepting an offer to pay less than what is owed will reflect negatively on a credit report. Before committing to a payment or payoff, be sure to ask just how the settlement would be reported and approximately how much one’s FICO score is likely to drop.

Can a consumer approach a credit card insurer to work out a deal? Yes. It never hurts to ask, but only do so prepared to make firm payment arrangements. This could include a bank draft each month. Falling behind on a structured payoff plan can also nullify the payment arrangements and cause all payments to be immediately due and payable, possibly leading to being sued in court for the amount owed instead of just being dunned by mail and phone.

However, for some consumers who just cannot afford to pay off their credit card debt, a settlement may be an option. If a credit card company contacts a card holder to discuss settlement, the card holder should make sure they fully comprehend all details involved. A good suggestion would be to take copious notes regarding the following information: agent’s name, Employee number, phone extension, date and time of call, what was discussed, whether or not the phone call was recorded and any payment arrangements made. Often, the agent will ask for a payment via phone as a show of good faith. Above all else, ask the agent to provide any settlement details in writing by mail so that there is a written record of any arrangements made should a dispute arise later. It is important to try to work with the same agent if a call back is needed since they will be more familiar with your case.

If a credit card account is still open and there is a need to maintain a small line of credit, attempt to negotiate with the company to keep even a small line of credit open. Emergencies do happen and so long as the credit card is paid, whether in full or at a reduced rate, the issuer may be willing to extend a small line of credit. In that case, use the card sparingly and pay early or on time to help re-establish and repair the credit mistake.



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