Credit Card Debt Settlement

About Credit Card Debt

Credit card debt can accumulate quickly—especially if you have more than one credit card and a habit of charging. When you have a great deal of credit card debt, it is tempting to make only the minimum payment every month. Unfortunately, it can take years, and in some cases "forever", to completely pay off the cards.

Carrying large amounts of credit card debt can not only create financial problems, it can also make it very difficult to get approved for car loans, home loans, and other types of credit. Lenders always look at your debt-to-income ratio prior to making any lending decisions. If the lender feels you are already "debt heavy" and strapped for cash, you could get turned down for a loan—regardless of your credit history.

Why Consider Credit Card Debt Settlement?

One of the fastest and most cost effective ways to eliminate credit card debt is with a debt settlement. A credit card debt settlement can be very beneficial in certain cases, and will be most helpful to people who have a large amount of debt that they want to get rid of as soon as possible.

One of the best reasons, however, to consider credit card debt settlement involves the interest rate. When you settle a debt, you can avoid paying hundreds, possibly even thousands, of dollars in interest payments.

How Credit Card Debt Settlement Works

A credit card debt settlement should not be confused with debt consolidation. When you consolidate debt, you pay off all of your debt—and you pay the full amount. With a credit card debt settlement, you pay only a portion of what you owe.

For example, if you have a $5,000 balance on your Visa Card, you can ask Visa to settle the account for only $2,000. A formal agreement would be worked out, you would pay $2,000 to Visa, and Visa would agree to write off the remaining $3,000.

The amount a credit card company will agree to settle for often depends upon the company. Most credit card companies will settle debt for 30 to 50 percent of what is owed, but there are others that will ask for as much as 75 to 80 percent.

Who is Eligible for Debt Settlement?

Anyone can look into a credit card debt settlement. In a worst-case scenario, the credit card company will say no. And as the old adage goes, you won't know until you ask.

The decision will be based on the credit card company's policy on debt settlements, but your personal financial situation may also come into play. Don't be surprised if the company asks for income statements or information on your other bills.

Staying Out of Trouble

Arranging to settle your debt will give you the opportunity to completely pay off your credit card balances. This way, you can start with a clean slate. Once a settlement is closed, you will want to make sure that you stay out of further trouble. Accumulating more debt after working so hard to pay off your cards is the last thing you want to do.

Here are a few tips that will keep you on the right track:

• You don't have to cancel your credit card accounts, but you do need to make sure you use them responsibly. Unless it is an absolute emergency, you should never charge more than you can pay off in any given month.
• If you do put charges on your credit card, don't pay the minimum payment only. This is most likely what got you into trouble the first time around. Always pay your balances off immediately.
• If you find yourself getting into trouble again, don't wait until it is too late to do something about it. Cut up your credit cards immediately, and seek help from a qualified credit counselor or debt management professional.