Myths Of Credit Card Debt Settlement

Debt settlement refers to an agreement to payoff a lower amount that the debtor owes to the lender. While "settling" your credit card debt may look like a great solution to your unmanageable debt of your plastics, there are certain issues you need to be aware of about the debt settlement process and its effects.

Myth 1: Debt Settlement of your credit card is always beneficial.

This is definitely not the case, especially if you have a good credit score with credit agencies! While having to pay just $5000 instead of $10,000 on your credit card to settle and close it may seem an attractive proposal at financially difficult times, remember that this settlement will affect your credit scores detrimentally. As a result, you may need to pay higher interest rates on your future loans and credit cards or worse get denied for credit applications all together.

Myth 2: You can always demand a settlement of your credit card debt.

Well you can ask for a settlement on your credit card debt at any point of time, but the lending company has the right to reject it! A settlement means that the credit card company will get paid lesser than what is owed by you. The only times when lenders agree for settlement is when they believe that you would not be able to pay them the complete amount owed or you may file for a bankruptcy. Most lending companies agree on settlement on credit card debts when the customer has a consistently good payment history. Therefore, if you have a good payment history with at least the minimum payments being made on time every month, then the credit card company would think that you are a responsible payer and you would manage payments even if settlement request is denied. This is an ironical situation but that is how the analysis of most credit card companies works!

Credit Card Debt Settlement will help your Credit Score.

On the contrary, if your request for a settlement is accepted by your credit card company, your credit scores are bound to plummet! A note on the settlement is sent to the credit agencies which affect your credit rating detrimentally. In order to discourage customers for requesting a settlement, some credit card companies do not accept payments for a few months prior to the settlement agreement. However, during this time, they levy heavy penalty charges and also report the customer's account for late payment to the credit bureau. Therefore, remember that even a small settlement amount on your credit card debt can spoil your credit rating which will take years to rectify.

Considering all these pitfalls, it is therefore recommended that you consider other solutions instead of a settlement agreement on your credit card debt. A debt consolidation loan is a much better solution. This will help you pay off your debt on your credit card immediately and also offer a much lower interest rate. A debt consolidation loan is an ideal solution for those individuals who otherwise have a good credit score and want to maintain it the same way.