The Drawbacks of Settling the Credit Card Debt

Credit card debt can easily become overwhelming. Customers facing credit card debt often realize that the minimum payments being made month after month are doing nothing for the balance of the card and are simply costing the customer money in interest every single month. What happens when you are unable to find the space in the budget to repay double the minimum payment to make a dent in the credit card debt? What about customers that are unable to find the extra money in the budget to repay credit card debt, how can they reduce the overall debt and get into a place of financial security?

One of the ways that the customer can help to secure their financial future against credit card debt is to settle the credit card debt with the company. Settling the credit card debt means that the customer and the credit card company agree that the customer is unable to repay the full amount of the balance that has been accumulated and negotiate an amount that is feasible for the Credit Card Company and customer to repay. The customer can repay this amount in full, through types of consolidation loans, or the customer can create a repayment plan with the credit card company to repay the lower balance – often at a lower interest rate.

Though credit card debt settlement may seem like the best option for customers, it’s essential for the customer to realize the effects that the settlement can have on the credit score. Settling the credit card debt with the credit card debt, or even with the finance companies that negotiate with the credit card companies on behalf of the customer will cause a negative strike on the credit report, which will remain on the credit report for up to seven years. Taking into account that the decreased credit score causes higher interest rate and fewer credit opportunities granted can help the customer to really determine if settling the credit card debt is the right choice for their needs.

Settling the credit card debt also requires the credit card account to be closed and therefore the customer will no longer have the opportunity to use the credit line or credit card from the company that has been issuing the services. The closing of the account can also affect the credit rating, causing the customer to lose their credit history that has been established and the security of having the credit available in case of an emergency expense.