How to Settle Credit Card Debt
The steps to know and resources you can use
Credit card settlements can seem complicated, but they don’t have to be. By understanding your options, you can make an informed decision about how to manage your settlement.
What Is a Credit Card Debt Settlement?
A settlement is when a credit card company forgives a portion of the amount you owe in exchange for you repaying the remaining amount. The remaining amount can be repaid in a single payment or over a series of payments.
Keep in mind:
- If your account has not already charged-off before you accept your settlement offer, then it will be permanently closed once you do accept the offer. This means that you will not be able to reopen the account and you cannot regain use of the card.
- The settlement may be reported to the credit bureaus. While it isn’t possible to say exactly how a settlement will affect your credit report, your settlement and payment information likely will be reported to the major credit bureaus as “settled in full for less than the full balance.” This can stay on your report after you’ve paid the settlement in full.
Before deciding on a settlement: You can always reach out to your credit card company to see if they are able to work with you. According to the Consumer Financial Protection Bureau (CFPB—until their proposed name change of BCFP goes into effect, we continue to refer to them as CFPB), “some creditors might be willing to...waive certain fees, reduce your interest rate, or change your monthly due date to match up better to when you get paid, to help you pay back your debt.”
The Credit Card Settlement Process
If a settlement seems to be the best choice for you, here is information on possible next steps.
1. Understanding Your Options
It may be helpful to meet with a credit counselor to think through your finances and calculate your payment options. You can get a list of government approved credit counselors by calling 800-388-2227 (National Foundation for Credit Counseling) or visiting this list of counseling services from the U.S. Department of Justice.
2. Selecting Credit Card Settlement Resources
Working directly with your credit card company: Managing your own settlement can save you money by avoiding fees associated with other services and ensures that you're involved and aware of every step in the process. The CFPB also provides recommendations for negotiating a debt on your own. “Consider all of your options, including working with a nonprofit credit counselor, and negotiating directly with the creditor or debt collector yourself.” - Consumer Financial Protection Bureau
Debt Settlement Resources: You might have heard advertisements for debt settlement companies claiming to negotiate a settlement with credit card companies on your behalf. While these companies can help you with your debt settlement, there may be other associated costs.
The CFPB emphasizes that dealing with debt settlement companies can be risky. They note that debt settlement companies “often charge expensive fees” and that “most debt settlement companies will ask you to stop paying your debts in order to get creditors to negotiate...a settlement.”
Debt Settlement Attorney: Similar to debt settlement companies, attorneys can work on your behalf but typically charge fees for their work. If you think a debt settlement attorney is right for you, the CFPB can help you find one.
3. Finalizing Your Credit Card Settlement Agreement
Once you’ve decided how you’ll manage your settlement--and agreed to a settlement amount and payment terms--it’s time to finalize your agreement and make the required payment or payments.
Once you’ve investigated settlements, take some time to carefully review your options before making any commitments. Remember, settlements typically involve charging-off your credit card debt, and permanently closing and restricting your account. You can reach out to the major credit bureaus (Equifax , Experian, and TransUnion) for advice on how different approaches could impact your credit score.
To learn more about your credit reports, check out our post on how to monitor your credit.
We hope that you found this helpful. Our content is not intended to provide legal, investment, or financial advice or to indicate the Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.