What is Credit Card Settlement and How Does it Work !

What is Credit Card Settlement and How Does it Work !

15 January, 2024

A Credit Card is a financial instrument that increases your purchasing power. When you have a Credit Card, you can make purchases up to the credit limit assigned by your card issuer. When you make purchases, your card issuers pay the retailers on your behalf. They then bill you for the expenses incurred at a later date, expecting you to pay off or settle your bills by a specific pay by date. But what happens when you can’t settle all your outstanding Credit Card debt on time? Here’s everything you need to know about Credit Card debt settlement.

What is Credit Card Settlement?

Credit Card Settlement is a process where you negotiate with your creditor to waive off a part of the outstanding amount due on your Credit Card by making a lump sum payment that you can manage. It is an agreement you reach with your card issuer as a last resort when you notice your Credit Card debt piling up. This can happen for several reasons ranging from financial emergencies to reckless spending habits.

When your debt piles up, so does the interest on it, which can make it difficult for you to repay the outstanding amount. If you see no way out of it, you can request a Credit Card settlement. The percentage of the amount you need to pay depends on your bank or financial institution. Although not the ideal solution, Credit Card companies may agree to it to get back at least a portion of your debt instead of declaring the entire amount as bad debt.

Credit Card Debt Settlement Process

The procedure to settle your Credit Card debt involves the following steps:

  1. Reach out to your Credit Card issuer or a debt settlement agency.

  2. Submit a request for Credit Card Debt settlement.

  3. Explain the reason for your inability to repay the entire outstanding amount on your Credit Card.

  4. Based on your situation, current income level, and their terms, your Credit Card issuer will agree to a settlement where you pay a lump-sum amount or work out a scheduled repayment plan.

  5. You can choose to take up either of the options and follow your card issuer’s policy to finish the formalities.

Impact of Credit Card Settlement on Credit Score

Your Credit Score is a three-digit figure that indicates your credit handling behaviour to prospective lenders. It depicts how well you can manage your debts. When you opt for a Credit Card settlement, you declare your inability to repay the entire outstanding balance. This reflects badly on your credit score. When loan providers and Credit Card issuers view this detail in your credit report, they might hesitate to grant you loans and approve your Credit Card applications. Besides, Credit Card settlement is recorded as a black mark in your credit history for up to seven years, thus hampering your credibility.

Credit Card Settlement: Should You Opt for It?

Opting for Credit Card settlement is as good as declaring yourself bankrupt to prospective lenders. As such, you must avoid it as much as possible to protect your chances of securing credit in the future. You should only opt for the settlement process if you have no other options left to clear your outstanding dues. If you do opt for a settlement, you can negotiate with your card issuer yourself to avoid the fees associated with hiring a debt settlement agency.

Alternatives to Credit Card Debt Settlement

Here are some other ways to settle your Credit Card dues to protect your credit score:

  • If you have long-term investments like Fixed Deposits, Stocks, Mutual Funds, etc., consider redeeming them to clear the outstanding amount gradually.

  • If you want relief from the interest rate piling up on your unpaid amount, opt for a balance transfer option. With this facility, you can transfer your balance from one Credit Card to another with a lower interest rate and leverage the no-interest period to pay off your dues with a lower financial burden.

  • Pledge your gold jewellery or other collateral to apply for a loan and use that amount to repay your Credit Card dues.

  • If your card issuer offers a manageable repayment plan that can help you repay your outstanding balance flexibly, consider it.

  • Practice budgeting, build new income sources, and other financial planning techniques to clear your dues.

Conduct Credit Card Debt Settlement Smoothly with HDFC Bank

If you are in a situation that forces you to opt for a Credit Card settlement, you will need a card issuer that responds to your request promptly and helps you glide through the process. HDFC Bank does just that. If you have an HDFC Bank Credit Card and you are struggling to pay your Credit Card dues, you can reach out to us through various means conveniently. You can call our toll-free number, use the chatbot option on the HDFC Bank website, or access the help centre option on the mobile banking app. Once done, our customer care executive will get back to you to guide you through the procedure.

Manage all Credit Card functions effortlessly with HDFC Bank.

*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Credit Card approvals at the sole discretion of HDFC Bank Limited. Credit Card approvals is subject to documentation and verification as per Bank's requirement. Interest rates are subject to change. Please check with your RM or closest bank branch for current interest rates.

Manage all Credit Card functions effortlessly with HDFC Bank. 

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