If Credit Card Debt is Too High, Should You Seek Debt Settlement?
With all the talk of bail-outs and settlements and debt forgiveness, some consumers have been led to believe that they can simply call up their credit card issuer and request a settlement.
While that might be nice for those with the cash to pay off half or two-thirds of their credit card balance, it isn’t going to happen.
That is, it isn’t going to happen unless you are willing to first destroy your credit rating by becoming severely delinquent in your credit card payments. From all indications, it appears that some (NOT all) banks will offer a settlement after payments become 6 months or more past due.
Of course, during those 6 months, your account balance will have been growing by leaps and bounds. After your payment is as much as an hour late, your interest rate will have jumped – perhaps it will have gone even as high as 29.9%. On top of that, your available credit will have been slashed to at or below the amount you owe.
Thus, on top of usurious interest, you’ll be charged a late fee. And because the new interest and penalties will put you over your credit limit, you’ll be charged an over limit fee as well. Your balance could double over those 6 months.
Under the new rules, credit card issuers won’t be allowed to automatically raise your interest rate until you’re 60 days late, and they won’t be able to slash your credit limit to an amount less than you owe, but those rules don’t go into effect until February.
Why would they offer you a settlement on your credit card balance? Because at this point they believe that you aren’t going to catch up on payments and they will be forced to do one of two things:
Sell your loan to a collection agency for pennies on the dollar
Turn the account over to an attorney to sue for collection
They’re going to lose money, no matter which method they choose. So accepting at least a partial payment from you could be more profitable than the alternatives in the long run.
They may send a series of letters, each time offering to take a smaller percentage as a payoff. If you’ve come into a windfall and can pay the settlement amount they offer, do it, because after all this time, your credit scores are already so bad that the settlement notation won’t do much more damage.
