Credit card companies are willing to negotiate credit card bill settlements with consumers struggling to make their minimum payments. While credit card companies typically lose money on settlements, they often prefer this option to write off the debt entirely. For consumers, the main advantage of credit card bill settlement is that it can help them get out of debt more quickly.
In addition, settlements can sometimes lead to a lower interest rate, saving consumers money in the long run. The main downside of credit card bill settlement is that it can damage your credit score. However, if you struggle to pay your credit card bills, settlement is your best option.
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Debt settlement allows you to pay a smaller amount than the total amount borrowed, and it’s usually the last resort if you can’t pay your debt. Financial experts recommend avoiding this option because the downsides of credit card debt settlement can be severe. Other debt relief options you can try first are debt consolidation, debt management, and credit counseling.
One of the most significant disadvantages of credit card debt settlement is the huge negative impact on your credit score. Debt settlement is typically considered when your payments have been long delayed, and your account has gone into collections. It’s the common option when third-party collection agencies are already collecting your debt.
At this point, your credit score is already at the bottom. Adding a debt settlement may not aggravate it, but the debt settlement will appear on your record for seven years. This will make it challenging to apply for another credit card or loan. If you do so, you’ll be subjected to higher interest fees. Further, debt settlement destroys your credibility with your current creditors, and they won’t likely allow you to reuse your existing credit line.
However, this can be a blessing in disguise. Since you’ve settled your debt and paid it off, you now have better control of your money and can begin spending only what you have. You can start building better financial habits without the threat of debt hanging over your head. Your credit score will slowly bounce back as you practice good financial management principles. It’s possible that before the seven years are up, you will regain your good credit score, giving you access to credit lines and credit cards again.
If you’ve decided to pursue a debt settlement, you must remember the following tips to succeed.
Debt can be a crippling thing that causes prolonged stress and sleepless nights, and it can rob you of life's joy, especially when collectors persistently call at your door. Debt settlement is the most suitable option to help you out of your situation.
Use the articles on Processing Card's blog section to learn how to navigate credit card debt successfully.
Florence Carpenter is passionate about ensuring that the process of opening merchant accounts is as straightforward as possible. She graduated from the University of Michigan with a bachelor’s degree in Marketing.
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