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A credit card settlement is nothing but a mutual agreement between a credit cardholder and the card issuer. It comes into picture when the cardholder is unable to repay the dues in full. In such situations, the card issuer, or a debt collection agency (on behalf of the issuer), or the cardholder may propose a settlement. The cardholder may be asked to pay the entirety of the due amount or a portion of it as lump sum for a complete waiver. The settlement amount and process can vary depending on the card issuer’s policies and cardholder’s circumstances.

What is the Credit Card Settlement Process?

Here’s how you can get started with your credit card settlement process: 

  • Reach out to your credit card issuer and request a settlement. At times, the credit card issuer or a debt collection agency (on the issuer’s behalf) may reach out to you as well.  Bear in mind that there may be a lot of back and forth between you and your credit card issuer during this process. You may have to negotiate with your provider to get a good deal. If you need to, you may also seek the help of a legal counsel. 

  • In case you were the one to reach out to your credit card issuer regarding the settlement, they may accept or reject your settlement proposal. The decision will be made based on your circumstances and their policies. In case it is rejected, then you will have to repay your dues in full to avoid legal action. 

  • In case they accept your settlement proposal, then you will have to repay the settlement amount as discussed.  

  • Make sure to get a written declaration from your card provider that you’ve settled your credit card dues. This will help you avoid legal issues in the future. 

Does Credit Card Settlement Affect Your Credit Score?

Credit card debt settlement will likely have an adverse effect on your credit score. Any kind of debt settlement is an indication that you have failed to meet your financial obligations. It may take some time to restore your credit score, depending on how much the settlement has affected your credit score. But, it’s entirely possible to improve your credit score after a setback like this. Just make sure not to take up any unnecessary credit and pay all your debt obligations on time. 

Credit Card Settlement – Is it a Good or a Bad Thing to Do?

A credit card settlement can be a good thing or a bad thing depending on your circumstances. A credit card settlement is similar to bankruptcy, in the sense that you are declaring that you do not have enough funds to repay your debts. As you may have guessed, a settlement can have lasting consequences on your credit score. This can make it quite difficult for you to get debt in the future and even if you do, it will likely be at a high cost. So, if you can avoid it, settling on your credit card dues is advisable for the long-term health of your finances. 

 

On the flip side, if you are in a dire situation that makes it difficult for you to even meet daily expenses, then your priority is probably not credit card dues. Credit card dues accrue high interest charges very quickly, so the longer you leave it be, the worse your situation can get. In such situations, settling with your credit card provider can be a blessing as you can pay off your dues once and for all. 

FAQs on Credit Card Settlement

Can I make a settlement with my credit card issuer?

Yes, you can settle with your credit card issuer if the bank or financial institution agrees to it. 

What percentage will credit cards settle for?

The credit card settlement percentage varies based on several factors. Generally, it can range from 30% to 80% of your total due amount. 

Is settlement good for credit card users?

It is commonly recommended to avoid credit card settlements as it can have a negative impact on your credit score. But, if you absolutely cannot repay the debt, it may be a good idea to settle. 

How do I settle my credit card payment?

Different card issuers have different procedures for settlement. So, it’s best to get in touch with your card issuer and inform them that you’d like to settle. 

What is the minimum amount for credit card settlement?

Typically, the minimum amount for credit card settlement is calculated at 5% of the total outstanding amount.

How do I clear my credit card settlement?

Generally, you will have to repay the entire outstanding balance on your debt to get a clearance from the credit card company. After this, you’ll need to get an NOC  (No Objection Certificate) from the issuer to have the ‘Settled’ status removed from your credit report. 

Can I get a loan after credit card settlement?

It will depend on your credit score and history. Post-settlement, if you can show that you have a stable source of income and are able to repay debts on time, then you should be able to get a loan. Though, it can be difficult for some people especially if there is a history of non-payment of dues and settlements. 

Can we increase CIBIL after settlement?

Yes, it’s possible to improve your credit score after a settlement. Just make sure that you make all repayments on time. 

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