A Credit Card Settlement Plan Helps You to Pay-off Your Debts

Credit card settlement could help to reduce your debts and improve affordability. The money that you owe on charge cards is unsecured which means that, unlike failing to pay your mortgage, creditors have no asset to take from you in the event of default. Although issuers and collection agencies will pursue you for repayment, their powers are far more limited. This means that they are willing to negotiate with respect to how your debt can be cleared. This has led to a growth in debt Solutions, such as the debt settlement program.

What is Credit Card Settlement?

A debt settlement program involves a financial professional negotiating with your creditors to change the terms of how the debt will be re-paid. Although nothing is set in stone, it may be possible to reduce the principal by up to 50%. This means that an affordable repayment can be made over a period of 12 to 36 months. It's possible to extend the term, but this is not recommended. The shorter the term, the greater the likelihood that a creditor will be agreeable to your offer.

Front-Loaded Fees

Avoid debt settlement programs that take their charges upfront. This practice increases the amount owed which creates problems should you decide that this debt solution isn't for you. It also increases the likelihood of creditors taking legal action against you. This is because most of your payments are going towards management charges. It's important to only sign-up to a plan where fees are taken each month. Front-loading has been rendered unlawful by the Federal Trade Commission (FTC).

Unethical Practices

Not all providers are bad apples. Check with the Better Business Bureau to find out what other customers think of the debt settlement company. Has there been any negative feedback? Only deal with established providers that have the highest ratings. Talk to family and friends to find out if they have any experiences to share with you.

Extending the Term of Credit Card Settlement Plans

Although increasing the amount of time debt is paid over is attractive because it reduces the amount that you'll pay each month, it's inadvisable. Try not to increase the term of a debt settlement program beyond 36 months. A longer term is less likely to be agreeable to creditors.

Credit card settlement is an excellent way of clearing unsecured debt. However, the debt settlement company you deal with is fundamental to the success of this debt solution. Do your research and keep the repayment term as short as possible.

Disclaimer: This article in no way attempts to provide legal, financial or tax advice. One should consult a licensed attorney, tax advisor, or other qualified financial professional before proceeding.

Updated: 30 April 2011