Settling credit card debt can be an opportunity you may be able to take in case you have long outstanding credit card debts where you are not making the monthly payments.

What Is Discounted Debt Settlement?

Every now and then, if a company can from its records see that you have not paid anything for a while and they believe its not likely that they’ll get the total amount of the debt plus interest from you, they will send you a discounted debt settlement offer.

This means that they will write with a proposal where you can pay perhaps 50% for this debt and they’ll write off the rest. Usually they’ll want this all in one payment, but when it is a large amount they could accept it in two or three instalments. Frequently the letter will come from a debt collection agency. This could mean that your original lender has signed over the debt to the debt collectors, or it might simply mean that the agency is working for a percentage of whatever they can recover.

Why Do They Propose Debt Settlement?

The finance agencies offer this if they can see that you’re having so much trouble making payments, they might have to take you to court to get the entire amount, and perhaps they would not even get it then, since you might declare bankruptcy.

So they have got a choice between incurring the price of court proceedings and perhaps still getting nothing from you, or offering you this deal where you pay 50% or whatever. They figure they are going to be better off accepting half of what you owe, than attempting to get the total amount with the courts.

What Should You Do?

Whether you need to accept the offer will depend on many factors.

First, you should be aware that accepting this can affect your credit score in a negative way, because you will not have paid off your whole debt. If it is possible to pay the total amount then it is much better on your credit record if you do so. However, you most likely would not have gotten to the point of receiving a settlement offer if you can pay in full. Accepting the settlement offer is usually better than having court actions against you.

Second, you need to consider how you can make the payment they want. Does it mean that other debts will go unpaid for a couple of months? What will be the implications of that? Would you now miss rent payments and perhaps lose your home? Think carefully about how you can raise the money.

Third, even if you decide to accept it might be worth trying to negotiate a lower settlement. This means calling them and saying that you can not pay what they have asked for but you can pay 40% or whatever. This is often worth trying as it can save you some money without extra penalties.

When you call, write down whomever’s name you speak to. If they accept your offer, ask them to place it in writing and watch for the letter to come before you pay. Then write a letter to send with your check stating that this is now full and final settlement of the debt, and ask them to write back acknowledging the debt has been paid.

Be aware that if you decide not to accept the offer, then after some time they could take the matter to court. A court may judge that you have to pay the entire amount plus the costs, so you’ll have a lot more to pay.

If you decide to accept, always read the small print on any offer. You must be sure this really is full settlement and they’ll write off any additional debt, so they’ve got no right to come back to you in future demanding more.

When everything is complete, look at what has been posted to your credit record. If there is any mistake you should ask for it to get corrected immediately and you need to send copies of all of your correspondence. So keep all paperwork whenever you accept any method of credit card debt settlement.