Credit Card: Debt Settlements

By Ningthoujam Sandhyarani

 A credit card is issued by a bank or a credit union to an individual by means of which he/she can borrow money or purchase goods. Credit cards allow the user or the cardholder to pay the money later, with an interest charged to the amount. Every credit card is provided with certain features such as the card type (secure, regular or premium), interest rate, credit limit and annual fee.

Credit cards, if used properly offer a number of advantages. These include the ease of purchasing goods, protection of purchases (in case the original receipt is lost) and during emergencies. Also, some of the credit card offers are cash discounts, bonuses, cash back and even insurance cover. However, credit cards have certain disadvantages. One of the major disadvantages of credit cards is that due to their convenience in usage, many of the cardholders land into debt and even bankruptcy.

In order to enjoy the maximum benefits of a credit card, the user should understand the terms and conditions before using the card. He/she should pay the full amount of the card dues (as far as possible) or the minimum due amount before the last date. In case, a user is not able to pay the owed money on time, the credit card company charges high interest at the end of each month that comes to about 20-25% per annum. In course of time, the unpaid balance becomes unmanageable and the user gets into credit card debt. 

In such a condition, the user (or debtor) can opt for a debt settlement with the credit card company or he/she can file for bankruptcy. In a debt settlement or a debt negotiation, the creditor agrees to offer a debt reduction arrangement so that the debtor will be able to repay the amount. 

There are two options of obtaining a debt settlement, one is to follow the settlement procedure by the debtor himself and another option is by hiring a debt management professional. In the former case, the debtor has to contact the creditor for the settlement. Before making the call, he/she should be well prepared and keep all the documents such as a copy of the recent bill and settlement offer letters from the creditor ready. The debtor should talk politely and should avoid using offensive words. Make it clear that he/she would like to make a payment through debt settlement. 

It is always better to speak to the manager or the supervisor as they hold an authority to make reasonable payment arrangements. In case they are not willing to settle the amount within the range of 40-50%, it is better to decline the settlement. There are chances that the debtor may receive a settlement letter with a better offer within the next few weeks. It is advisable to keep a record of the conversations, including the time, date and the name of the person with whom you speak. This will help to solve the issues (if any) over payment arrangements. 

Many people are of the opinion that debt settlement by a professional is a better option, as he/she knows about the individual creditors and their offers. Also, the professional is aware of the standard acceptance of a specific creditor, thus settling the debt to a possible minimum figure. 

Most of the creditors settle in a range of 30-60% of the debt amount. However, in some cases it can be as low as 20-30% or as high as 80-90%. The debt reduction figures depend on the financial situation of the debtor and the internal debt settlement policy of the creditor. Also, the creditor may ask the debtor to pay the lump sum amount within a short time, or the debt settlement plan may extend to more than three years.