Settling credit card debt can be an alternative you may be able to take for people with long outstanding credit card debts where you don’t make the monthly payments.
What Is Cut-rate Debt Settlement?
On occasion, if a company can from its records see you have not paid anything for a while and they think it’s not likely that they’ll get the full amount of the debt plus interest from you, they will send you a discounted debt settlement offer.
This means that they will write with an offer where it is possible to pay perhaps 50% on the debt and they’ll write off the rest. Usually they’ll want this all in one payment, but if it is a large amount they could accept it in two or three instalments. Frequently the letter will come from a debt collection agency. This could mean your original lender has signed over the debt to the debt collectors, or it could simply mean that the agency is working for a percentage of whatever they can recover.
Why Do They Offer Debt Settlement?
The finance agencies offer this if they can see that you are having a great deal of trouble making payments, they may have to take you to court to get the entire amount, and maybe they wouldn’t even get it then, since you might declare bankruptcy.
So they have got a choice between incurring the cost of court proceedings and maybe still getting nothing from you, or offering you this deal where you pay 50% or whatever. They figure they are going to be better off accepting half of what you owe, than attempting to get the total amount through the courts.
What Should You Do?
Whether you ought to accept the offer depends on many factors.
First, you should be aware that accepting this will affect your credit score in a negative way, because you will not have paid off your whole debt. If you are able to pay the total amount then it is better on your credit record if you do so. However, you most likely would not have gotten to the point of receiving a settlement offer if you can pay in full. Accepting the settlement offer is usually better than having court actions against you.
Second, you’ll need to consider how you can make the payment they want. Does it mean that other debts will go unpaid for a couple of months? What will be the implications of that? Would you have to miss rent payments and perhaps lose your house? Think carefully about how you can raise the money.
Third, even when you decide to accept it might be worth trying to negotiate a lower settlement. This means calling them and saying that you can’t pay what they have asked for but you can pay 40% or whatever. This is often worth trying as it can save you some money without extra penalties.
Whenever you call, write down whomever’s name you speak to. If they accept your offer, ask them to place it in writing and watch for the letter to come before you pay. Then write a letter to send along with your check stating that this is now full and final settlement of your debt, and ask them to write back acknowledging that the debt is paid.
Remember that if you decide not to accept the offer, then after some time they may take the matter to court. A court may judge that you are required to pay the entire amount plus the costs, so you would have much more to pay.
If you decide to accept, always read the small print on any offer. You must be sure this is full settlement and they will write off any additional debt, so they have no right to revisit you in future demanding more.
When everything is complete, check out what is posted to your credit record. If there is any mistake you should ask for it to get corrected quickly and you’ll need to send copies of all of your correspondence. So keep all paperwork if you accept any method of settling credit card debt.
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