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What is credit card settlement and how does it work?

  • Highlights
  • Opt for credit card settlement only as a last resort

  • Paying a lump sum helps you settle credit card debt

  • Credit card settlement severely harms your credit score

  • Use credit cards only to the extent that you can afford

Credit cards, when used wisely, work in favour of your personal 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 special amenities and so on. However, in the event that you do find yourself with significant outstanding debt, consider credit card settlement as a last-resort measure.

What does this entail? Read on to find out.

What is a credit card settlement?

A settlement is a tactic you can employ when you find it difficult to keep up with your credit card dues. This can happen because of a sudden emergency that requires ample financing for a long period of time, or because of reckless spending. Whatever the reason may be, the main issue at hand is that your credit card dues will grow rapidly every month and cause severe financial stress. In such a situation, it’s consider a settlement that is 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 very low 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.

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Does the credit card settlement process affect your credit rating?

Credit card debt settlements hurt you 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 most subsequent loan applications.

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

What is the credit card settlement process?

The following 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 the impact they have 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 apprßoach the issuer and avoid 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. To simplify the latter, opt for a credit card issuer that allows you make payments via multiple payment gateways. The Bajaj Finserv RBL Bank SuperCard is one such option as you can pay using any of the 6 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 payment.

The SuperCard also allows you 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 enjoy all these benefits and more instantly, all you need to do is check your pre-approved offer online. Apply using a customised credit card offering and get quick approval.

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