What Is Credit Card Debt Settlement and How It Works?

If you found your self buried under the mountain of debt, you are bound to find a way to get out of it. Many Australian turns to debt settlement when they amount they owe becomes too overwhelming. Negotiating a settlement of your credit card debt could be a good option to get your finances back on track. However, credit card debt settlement is not simple as it seems. There are pitfalls and consequences attach to it if are not careful in your dealings.

So, what is credit card debt settlement anyway?

The credit card debt settlement is a settlement between the debtor and the credit card company. Usually, during the settlement the credit card company would require you pay a certain percentage of the amount you owe immediately. In return, the company will forgive your remaining debt. For example, you have a $20,000 debt the credit card company might be able to settle for $15,000 as full payment. This credit card debt reduction strategy sounds simple and enticing, right? It is actually not, there are risks when you into credit card debt settlement. Make sure that you understand all the risks before you decide to go for it.

How does credit card debt settlement work?

If you have missed at least 6 months of payment and it is not viable for you to pay the amount in foreseeable future debt settlement is probably an option you might consider before you file for bankruptcy. Normally, credit card debt settlement is done getting the services of a third party, a debt settlement company that will negotiate with the creditors on your behalf. It is the work of the settlement company to negotiate for a lower amount and will pay the agreed amount on your behalf. On your part, you will have to pay a monthly payment to the debt settlement company.

When you decide to hire a third party to settle your debt on your behalf, you need to stop communicating with your creditors. The goal here is to let the creditors feel that you won’t be paying them at all. Make them desperate that they will accept some sort of payment instead of receiving nothing at all. Instead of paying your creditors, try work a viable debt reduction plan with the debt settlement company. Once the company deemed that you have enough for a lump-sum offer, they will then negotiate on your behalf with the creditor to accept a smaller amount.

However, you have to remember that debt settlement plan is risky. In fact, it is a gamble. Discuss the pros and cons with the debt settlement company before you jump into that situation.