5 min read
28th October 2023

Credit cards, when used wisely, work in favour of your finances. To ensure maximum benefits, you must ensure that your credit card usage ties in with what you can afford. This can be hard to resist, given that credit cards boost your purchasing power and also give you access to a whole range of benefits. Depending on the issuer, you may get interest-free borrowing periods, access to unique amenities and so on. However, if you find significant outstanding debt, consider credit card settlement as a last-resort measure.

What is a credit card settlement

A credit card settlement means that you enter an agreement with your card provider to pay off a lesser amount against the outstanding balance. it is a tactic you can employ when it is challenging to keep up with your credit card dues. This can happen because of a sudden emergency that requires ample financing for a long time or reckless spending. Whatever the reason, the main issue at hand is that your credit card dues will multiply every month and cause severe financial stress. In such a situation, it’s considered a settlement offered by both banks and debt settlement agencies.

Here, you may be advised to either set aside a lump sum and offer it in exchange for a complete waiver or directly appeal for a settlement. Credit card payment settlements are only done in extremely rare cases, and issuers do not encourage it. You should consider a settlement as a last resort, and even then, there is a meagre chance that the issuer will agree to it without you making a lump sum payment. The credit card settlement percentage depends on the issuer and your ability to negotiate.

Does the credit card settlement process affect your credit rating

Credit card debt settlements hurt your credit score almost as much as filing for bankruptcy does. These settlements severely damage your score, and it can take several years to recover from it. This is mainly because your credit history records a settlement as a black mark that can last up to 7 years and hamper subsequent loan applications.

Additional Read: How to increase your credit card CIBIL score?

What is the credit card settlement process

Given below is the process to initiate credit card settlements.

  • Visit the issuer or a debt settlement agency
  • Explain your inability to make payments via a credit card settlement letter and mention that you’re open to negotiating other repayment terms
  • Offer a lump sum or inform the issuer of your plans to file for bankruptcy

Following these steps, the issuer may either deny or approve a settlement. If approved, the issuer may offer a repayment plan based on your current income or grant you a temporary forbearance agreement.

Additional Read: Credit card without income

Is credit card settlement a good idea

Typically, you’re advised to avoid credit card settlements because of their impact on your credit score. However, depending on your current situation, you may have no other choice but to settle. For this reason, it is important to know how to negotiate credit card debt settlement yourself, as it allows you to approach the issuer and avoids the fees associated with hiring a debt settlement agency.

The bottom line is that to avoid a situation where you need to resort to a settlement, ensure that you spend only what you can afford via your credit card and clear bills on time. Opt for a credit card issuer that allows you to make payments via multiple payment gateways to simplify the latter. The Bajaj Finserv RBL Bank SuperCard is one such option as you can pay using any of the six payment options. Among them is the RBL MyCard app that allows you to pay your bill in just a few taps. Use this feature to ensure that you never miss a credit card bill payment.

The SuperCard also allows you to benefit from various credit card offers on lifestyle, entertainment and utility purchases. Additionally, you earn reward points on every transaction, facilitating greater savings of up to Rs. 55,000 per year. To avail of all these benefits and more instantly, all you need to do is check your pre-approved credit card offer online. Apply using a customised credit card offering and get quick approval.

Disclaimer

1. Bajaj Finance Limited (“BFL”) is a Non-Banking Finance Company (NBFC) and Prepaid Payment Instrument Issuer offering financial services viz., loans, deposits, Bajaj Pay Wallet, Bajaj Pay UPI, bill payments and third-party wealth management products. The details mentioned in the respective product/ service document shall prevail in case of any inconsistency with respect to the information referring to BFL products and services on this page.

2. All other information, such as, the images, facts, statistics etc. (“information”) that are in addition to the details mentioned in the BFL’s product/ service document and which are being displayed on this page only depicts the summary of the information sourced from the public domain. The said information is neither owned by BFL nor it is to the exclusive knowledge of BFL. There may be inadvertent inaccuracies or typographical errors or delays in updating the said information. Hence, users are advised to independently exercise diligence by verifying complete information, including by consulting experts, if any. Users shall be the sole owner of the decision taken, if any, about suitability of the same.

Bajaj Finserv app for all your financial needs and goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

  • Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.
  • Explore and apply for co-branded credit cards online.
  • Invest in fixed deposits and mutual funds on the app.
  • Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.
  • Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.
  • Apply for Insta EMI Card and get a pre-approved limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on Easy EMIs.
  • Shop from over 100+ brand partners that offer a diverse range of products and services.
  • Use specialised tools like EMI calculators, SIP Calculators
  • Check your credit score, download loan statements, and even get quick customer support—all on the app.

Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.

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UPI, Wallet, Loans, Investments, Cards, Shopping and more

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Frequently asked questions

What happens if I settle a credit card outstanding balance?

If you settle a credit card outstanding balance, you will have to negotiate with your credit card company to pay off your debt for less than the total amount owed. Once you make the agreed-upon lump sum payment, your debt will be considered paid off and the credit card company will close your account.

Is it good to take a credit card settlement?

It depends on your financial situation. Credit card settlement can be a good option if you're struggling to pay off your debt and facing bankruptcy. However, it can negatively impact your credit score and may come with tax implications, so it's important to weigh the pros and cons before deciding.

What is the credit card settlement process?

The credit card settlement process involves negotiating with your credit card company to pay off your debt for less than the total amount owed. You can either initiate this negotiation on your own or work with a debt settlement company. Once you reach an agreement, you make a lump sum payment to the credit card company, and they close your account.

What is credit card settlement?

Credit card settlement involves negotiating with your credit card company to pay off your debt for less than the total amount owed. It is a way to settle your debt without going through bankruptcy or defaulting on payments.

Is it okay to opt for credit card settlement if I am not able to repay the debt?

Yes, credit card settlement can be a good option if you are unable to repay your debt and facing financial difficulties. However, it may negatively impact your credit score and may come with tax implications, so it's important to carefully consider the pros and cons before deciding.

Can we improve our credit score after settlement?

It may be possible to improve your credit score after settlement if you make all your payments on time and show responsible credit behavior going forward. However, the settlement may still show up on your credit report and negatively impact your score for up to seven years.

What is the disadvantage of credit card settlement?

The main disadvantage of credit card settlement is that it can negatively impact your credit score. It may also come with tax implications and may not completely resolve your debt, as you'll likely still owe a percentage of the total amount owed. Additionally, some credit card companies may not be willing to negotiate and offer a settlement.

Conclusion:

In conclusion, credit card settlement can be a helpful tool for managing credit card debt. It's crucial to carefully weigh the pros and cons of this option before making any decisions. Seeking professional help and advice can also make a significant difference in negotiating a settlement agreement with the credit card company. By taking these steps, you can successfully manage your credit card debt and protect your financial future.

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