If you are down on your bills and looking for a way out, you may have stumbled on the term credit card debt settlement. What exactly is this and can it help you with your situation?
Credit card debt settlement is simply negotiating with your creditors to accept a payment of less than your full balance.
Don’t confuse this with entering into a debt management plan! Debt management is where you make a single monthly payment to a credit counseling company and they forward this payment to your creditors. In this situation, the counseling company will negotiate with your creditors – but only to reduce your monthly payments and interest rates. Under debt management, you will still pay all of the principal back!
If you enter into a credit card debt settlement program, your creditors will typically agree to accept somewhere between 40% and 60% of what you owe. While it is great to get a debt settled for less, there are consequences.
The creditors will report the accounts to the credit bureau as “debt settled for less than the full amount due” or some variation of that. All of your negative history will remain, although the balance will be shown as zero. The account will impact your credit score in a similar way that a charge off would. This means if the account is old and has not had activity for quite some time, your credit score may go down when you settle the account because the date of last activity will be renewed.
That being said, if you are facing a lawsuit from a creditor or trying to avoid bankruptcy, looking into credit card debt settlement programs may make sense. Settling credit card debt on your own is also possible. The major disadvantage to this is that it can be frustrating and you may not get the results you are looking for unless you take the time to learn the ins and outs of debt settlement.
There are many credit card debt settlement companies out there, but you need to be careful who you go with. The best thing you can do is get a referral from someone you know and trust. If that isn’t an option, then you will need to do a lot of research online to determine the best company for you. You can search for the best credit card relief act reviews on the web. Be sure to look for a company that has been offering credit card debt settlement services for some time, and that has a good rating with the better business bureau!
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