Credit Card Settlement

Summary

Credit card settlement is one of the financial bailout sources for debt-laden borrowers allowing them to remit a lesser amount compared to the entire payable amount. It may deter legal issues and the harassment of telephone calls but does negative marks on the borrower’s credit history as well as borrowing eligibility in the future. There are negotiations by the borrower with the bank following which the total amount is remitted as a lump sum.

Major banks like SBI, HDFC, ICICI, Axis, and Bank of Baroda offer various credit cards that give cashback, travel privileges, and reward shopping points, but mismanagement may lead to financial strain. It is mostly accessed when a job loss an illness, or a runaway payment of interest arises.

Before settling, borrowers may explore options like restructuring EMI, loan refinance, or financial planning. Though settlement provides relief in the short term, maintaining financial discipline and timeliness even after settlement is essential to reverse the damage to credit scores. Finally, sound credit management is always the way to stability and future access to credit.

Introduction

Credit cards are an asset tool of finance, but when poorly managed, they lead to enormous debts. Sometimes, due to financial shortages, it becomes hard for people to pay credit card bills on time. This causes increased rates of interest, late payment charges, and a bad credit report. When the debt is too large to be paid back, credit card settlement is one of the solutions.

Credit card settlement is a process by which the bank or credit card company accepts an amount less than the outstanding amount. In this, the customer pays a lower amount instead of the full amount, and the lender forgives the remaining amount. This is usually done when the borrower faces a serious financial crisis and cannot repay the full amount.

Banks and financial institutions prefer to receive the credit card charges in full, but if they realize that a customer is unable to pay, they will accept a settlement. It is because it is better to recover some portion of the money than to lose the entire money. Credit card settlement is usually offered when a customer has missed multiple payments, lost their job, or is facing financial hardship because of medical issues, loss of employment, or other problems.

The process of settlement of credit cards involves negotiation between the borrower and the lender. The borrower or a debt settlement firm can negotiate for a smaller amount to be paid either as a lump sum or in installments. The parties agree and the borrower pays, and the lender reports the debt as “settled” instead of “paid in full” on the credit report.

What is a Credit Card Settlement?

Credit Card Settlement is a process in which you negotiate with your creditor to forgive a part of the outstanding amount on your credit card by making a lump sum payment. It is an agreement that you make with your card issuer as a last resort when you see that your credit card debt is increasing.

This can happen due to many reasons, ranging from unnecessary spending to careless spending habits. When your debt increases, the interest on it also increases, which can make it difficult for you to repay the outstanding amount. If you do not see any way out of this, then you can recommend Credit Card Settlement.

Benefits of credit card settlement 

• You pay less than the amount currently outstanding, and it is convenient to pay your dues.

• In case you cannot refund your credit card loan, the bank can pursue you. The settlement avoids this.

• When the process of settlement is started, collection agencies stop calling and hassling you for payment.

• After settling, additional penalties, late fees, and high-interest charges are stopped.

• Some settlements allow for payment of a lump sum, which can enable you to clear the debt quickly.

Drawbacks of credit card settlement 

• A settled status against your credit record lowers your CIBIL score, and accordingly, it’s hard to apply for loans ahead.

• The bank marks the debt as “Settled” instead of “Paid in Full”, reducing your creditworthiness.

• After settling, banks and lenders could be reluctant to grant new loans or credit cards.

• The “settled” remark will remain on your credit report for up to 7 years, making your creditworthiness worse.

How many types of credit cards are there?

Here is a selection of five notable credit cards offered by major Indian banks, along with their key features:​

State Bank of India (SBI)

• SBI Cashback Credit Card: Offers up to 5% cashback on online spending and 1% on offline spending and more. ​
  
• SBI SimplyCLICK Credit Card: Provides 10X reward points on online spending with exclusive partners and 5X on other online spending, etc reward points. ​

• SBI Card ELITE: A premium card offering complimentary movie tickets, lounge access, accelerated rewards on dining groceries, and more benefits.​
  
• SBI Prime Credit Card: Offers milestone benefits, lounge access, and accelerated reward points on dining, groceries, and departmental stores & more.

• SBI BPCL Credit Card: Provides benefits on fuel purchases, including surcharge waiver and accelerated reward points at Bharat Petroleum outlets and more rewards.

HDFC Bank

• HDFC Millennia Credit Card: Offers cashback on online and offline spending, with additional benefits on popular e-commerce platforms & more reward facalitites.
  
• HDFC Regalia Credit Card: A premium card providing travel benefits, including lounge access, and accelerated reward points on travel and dining benefits.​
  
• HDFC Diners Club Black Credit Card: Offers unlimited lounge access worldwide, high reward points on spending, and comprehensive travel insurance & etc benefits.​
  
• HDFC Freedom Credit Card: Provides rewards on dining, groceries, and bill payments, along with milestone benefits & more.
  
• HDFC MoneyBack Credit Card: Offers cashback on all spends, with accelerated benefits on online transactions and more rewards.​
  

ICICI Bank

• Amazon Pay ICICI Credit Card: Provides cashback on Amazon purchases and other spends, with no joining or annual fees & etc.
  
• ICICI Coral Credit Card: Offers rewards on dining, groceries, and fuel, along with complimentary movie tickets and lounge access & more airport benefits.​
  
• ICICI Platinum Chip Credit Card: A lifetime free card providing rewards on all spends and fuel surcharge waivers & more reward benefits.​
  
• ICICI Bank Sapphiro Credit Card: A premium card offering travel and lifestyle benefits, including lounge access and golf privileges & more milestone benefits.​
  
• ICICI Bank Rubyx Credit Card: Provides dual benefits of rewards and lifestyle privileges across dining, entertainment, and travel.​
  

Axis Bank

• Flipkart Axis Bank Credit Card: Offers cashback on Flipkart, preferred partners, and other spends, along with welcome benefits & etc. ​
  
• Axis Bank Ace Credit Card: Provides up to 5% cashback on bill payments and online food delivery, with low annual fees & extra benefits.
  
• Axis Bank Buzz Credit Card: Designed for online shoppers, offering discounts and rewards on Flipkart purchases.​
  
• Axis Bank Vistara Credit Card: Offers travel benefits, including complimentary flight tickets and lounge access, in partnership with Vistara Airlines & more rewards.​
  
• Axis Bank My Zone Credit Card: Provides benefits on entertainment, dining, and shopping, including discounts and complimentary services.​
  

Kotak Mahindra Bank

• Kotak PVR Gold Credit Card: Offers complimentary movie tickets and discounts on PVR cinemas, along with dining benefits & etc.​
  
• Kotak Royale Signature Credit Card: Provides rewards on all spends, with additional benefits on travel and lifestyle privileges & more rewards.
  
• Kotak Urbane Gold Credit Card: Offers rewards on retail spending and milestone benefits, with a low joining fee & more.​
  
• Kotak Essentia Platinum Credit Card: Provides savings on groceries and departmental store spending, along with reward points.​
  
• Kotak League Platinum Credit Card: Offers rewards on all spends, with additional benefits on dining and fuel surcharge waivers.​
  

Citibank

• Citi PremierMiles Credit Card: Offers air miles on all spends, with flexible redemption options across airlines and travel services & more rewards.​
  
• Citi Cashback Credit Card: Provides cashback on utility bill payments, movie tickets, and other everyday spends & money.​
  
• First Citizen Citi Credit Card: Designed for shoppers at Shoppers Stop, offering rewards and exclusive discounts.​
  
• Citi Rewards Credit Card: Offers reward points on all spends, with accelerated benefits on apparel and department store purchases & etc.​
  
• Citi IndianOil Credit Card: Provides benefits on fuel purchases at IndianOil outlets, including surcharge waivers and reward points.​
  

Standard Chartered Bank

• Standard Chartered Super Value Titanium Credit Card: Offers cashback on fuel, telecom, and utility bill payments & more rewards.​
  
• Standard Chartered Manhattan Platinum Credit Card: Provides rewards on grocery and departmental store spending, along with dining discounts & more discounts.
  
• Standard Chartered Ultimate Credit Card: A premium card offering high reward points on all spends, with travel and lifestyle benefits.​
  
• Standard Chartered Platinum Rewards Credit Card: Offers rewards on dining and fuel spending, with no joining fee.​
  
• Standard Chartered DigiSmart Credit Card: Designed for online shoppers, providing discounts on popular e-commerce platforms and services.

AU Small Finance Bank

• AU Bank Altura Credit Card: An entry-level card that provides 2% cashback on retail spending, making it suitable for everyday purchases & more rewards.

• AU Bank Altura Plus Credit Card: This card offers a combination of cashback and reward points, allowing users to earn on their spending while enjoying additional benefits & etc.

• AU Bank Vetta Credit Card: A premium card offering accelerated reward points on eligible spending at grocery and departmental stores, along with a flat ₹2,000 voucher on qualifying spending within the first 60 days & more reward benefits. ​

• AU Bank Zenith Credit Card: Crafted in metal, this card provides exclusive lifestyle privileges and is designed for high-net-worth individuals seeking premium benefits & more.

• AU Bank LIT Credit Card: A customizable card that allows users to activate or deactivate features based on their preferences, providing flexibility in managing benefits and rewards. ​

Bank of Baroda

• BOBCARD Eterna Credit Card: A premium lifestyle card offering accelerated reward points on every transaction, complimentary airport lounge access, a 6-month FitPass Pro membership, and monthly ‘Buy One Get One’ movie ticket offers. Cardholders can achieve smart savings of up to ₹81,000 per year & extra rewards. ​

• BOBCARD Prime Credit Card: A lifetime free credit card designed for everyday use, providing benefits such as reward points on purchases, fuel surcharge waivers, and flexible credit limits. It’s an ideal choice for those seeking value without annual fees and many benefits.

• BOBCARD Premier Credit Card: This card offers extensive travel benefits, including complimentary lounge access and high reward points on travel expenditures. Additionally, it provides fee waivers upon achieving certain spending milestones, making it suitable for frequent travelers with 7 more benefits. ​

• IRCTC BOBCARD Credit Card: A co-branded card in partnership with IRCTC, offering up to 10% savings on train ticket bookings, rewards on everyday shopping, and bonus reward points. It’s tailored for individuals who frequently travel by train 7 etc. 

• BOBCARD Select Credit Card: This card provides 1,000 bonus reward points every month when cardholders make five transactions worth ₹1,000 or more in a month. It’s designed for those who seek consistent rewards for regular spending & more rewards. ​

Central Bank of India

• Visa Platinum Credit Card: This card provides worldwide acceptance, allowing transactions at over 29 million merchant outlets globally and cash withdrawals from 1 million ATMs. Cardholders can enjoy seasonal discounts on hotel accommodations and shopping deals throughout the year. ​
  
• Titanium Credit Card: A lifetime free premium card offering world-class privileges. Cardholders can benefit from the Anmol Loyalty and Rewards program, earning rewards redeemable for various offers. ​
  
• Aspire Credit Card: Designed for individuals seeking exclusive offers on travel, dining, entertainment, and lifestyle spending. It offers a credit-free period of up to 55 days and includes a personal accident cover of ₹1 lakh under a group insurance scheme.
  
• RuPay Platinum Credit Card: Offers similar benefits to the Visa Platinum card, with the added advantage of being part of the Indigenous RuPay network. ​
  
• RuPay Select Credit Card: A premium offering under the RuPay network, providing enhanced benefits and privileges for discerning customers.

What are the reasons for doing a Credit Card Settlement?

Below are some common reasons:

• If a person loses his job, stops a source of income, or suffers huge losses in business, then it may be difficult to repay the loan on time.

• There may be a shortage of money to repay the loan if the expenses suddenly increase due to a major illness or medical emergency.

• Many times, a person has the burden of more than one loan, which becomes difficult to repay on time.

• There may be problems in repaying the loan due to any natural disaster, accident, or any major crisis in the family.

• If the interest rate of the loan is very high and there is a problem in repaying the installment, then Credit Card Settlement is resorted to.

• Many times, a person is not able to manage his expenses and income properly after taking a loan, which causes problems in repaying.

What documents are required to do a Credit Card Settlement?

If, for some reason, you are not able to pay your credit card in full, then a Credit Card Settlement can be an option. In this, the bank or loan-giving institution (NBFC) settles your outstanding loan for a certain amount by giving some discount. But to complete this process, you have to submit some important documents.

Documents required for Credit Card Settlement:

1. Identity Proof

• Aadhaar Card
• PAN Card
• Passport
• Voter ID
• Driving License

2. Address Proof

• Aadhaar Card
• Electricity or Water Bill
• Bank Passbook or Statement
• Ration Card
• Passport

3. Income Proof

• Salary Slip (last 3-6 months)
• Bank Statement (last 6-12 months)
• Income Tax Return (ITR)
• Form-16

4. Loan Agreement

This is the document issued by the bank or NBFC at the time of giving the loan. It contains the details of the loan terms and your outstanding amount.

5. CIBIL Report

During a Credit Card Settlement, the bank checks your CIBIL score, which gives them information about your credit history. This report shows your credit behavior and current loan status.

6. Settlement Request Letter

If you want to get a Credit Card Settlement done, then you will have to give a written request letter to the bank, in which you will tell about your current financial situation and the need for settlement.

What to do before doing a Credit Card Settlement?

Below are some steps that should be followed before a Credit Card Settlement:

• First of all, check your income, expenses, and all other debts properly. Know how much you can repay.

• Before a Credit Card Settlement, share your problem with the bank or lender. 

• Sometimes, they can offer you a better solution, such as reducing the EMI or increasing the loan term.

• Contact a financial advisor or expert. They can help you make the right decision and explain how Credit Card Settlement will affect your credit score.

• If you decide to do a Credit Card Settlement, read the terms and conditions given by the bank carefully. Make sure that you are not being charged any hidden fees.

• Doing a Credit Card Settlement can reduce your credit score. This can make it difficult to get a loan in the future. Make a decision keeping this in mind.

• Credit Card Settlement should be the last option. Before that, consider other options like refinancing, reducing EMIs, or asking family and friends for help.

What is the Credit Card Settlement Process?

The process of Credit Card Settlement is explained below in simple terms:

• First, determine why you are unable to repay the entire loan amount. Check your financial situation and payment capacity.

• Contact Home Credit customer care or the nearest branch. Tell them about your current financial problems and discuss the option of Credit Card Settlement.

• Home Credit will understand your situation and make a settlement offer. This offer will be for repaying a part of the loan amount.

• Read the terms mentioned in the settlement offer carefully. Make sure you understand how the settlement will affect your credit score and future loan eligibility.

• Once you accept the offer, repay the agreed settlement amount on time. This is usually a lump sum payment.

• After the payment, get a written proof (No Due Certificate) from Home Credit. This proof will be proof of the completion of your credit card settlement and will help avoid any dispute in the future.

• Check your CIBIL Report after the settlement. Make sure the credit card settlement details are recorded correctly.

What is the impact on the CIBIL Report after a Credit Card Settlement?

A settlement can hurt your CIBIL Report. The impact can be seen in the following ways:

• After the settlement process, your CIBIL Report records that you have “settled” your debt. This entry remains in your credit history for 7 years and can be viewed negatively by lenders or other creditors, which can affect your chances of getting a loan in the future.

• Since a settlement means that you have not repaid the entire debt, when you try to get a new loan in the future, banks may reject your application or offer you loans at higher interest rates by looking at your credit score and report.

• After settlement, if you have a credit card or other credit line, your credit limit may be reduced as creditors think you may be a high-risk customer.

• If your credit score drops, it may be difficult for you to get a loan, credit card, or any other type of credit facility. This can also affect your financial stability, especially if you face a financial emergency in the future.

• When you settle with your bank, you are not paying off the entire debt, but a certain amount that is less than the principal amount. This is viewed negatively by the credit bureaus, as it shows that you have been unable to repay your debt. As a result, your credit score may drop.

What are the pros of doing a credit card settlement?

It has many pros, which are as follows:

• Although Credit Card Settlement can affect the borrower’s credit score, by following the agreement on time and in the right manner, he can gradually improve his credit score.

• The heavy burden of debt often causes mental stress. Loan Settlement gives relief to the borrower from this stress, and he can get mental peace in his life.

• Through Credit Card Settlement, the borrower gets a chance to get a part of his loan waived off.

• This helps in improving his financial condition and gives him relief from a heavy financial burden.

• Credit Card Settlement improves the financial condition of the borrower.

• With Credit Card Settlement, you can manage your income and expenses better and avoid a financial crisis in the future.

What are the cons of doing a credit card settlement?

It has many cons, which are as follows:

• During Credit Card Settlement, the agreement between the bank and the borrower contains many conditions. The borrower is required to follow these conditions, which may limit his freedom.

• After a Credit Card Settlement, the borrower’s credit score may be affected.

• In the future, the borrower may have difficulty in getting loans from these institutions.

• A Credit Card Settlement may create difficulties in taking new loans or getting credit cards in the future.

• Due to Credit Card Settlement, the borrower’s relationship with the bank and other financial institutions may deteriorate.

• Through Credit Card Settlement, the entire loan of the borrower is not waived off. He still has to pay some amount, which may affect his financial position.

Conclusion

For those with significant credit card debt, credit card settlement can show to be a smart concept. Settlement of credit cards lets lenders pay a smaller amount, therefore relieving debt load. Paying the due helps one avoid legal problems, halt collection calls, and have peace of mind. It seems to be a simple option to settle bills, but it has significant drawbacks. The biggest problem is its negative impact on the credit score. 

Before selecting credit card settlement, other options need to be explored. Financial management, planning, debt consolidation, or negotiating a convenient payment schedule with the bank might be more suitable. If a settlement is necessary, a sensible negotiation has to be done and the terms well understood. On-time payment of debts and a good credit history are always the best ways of obtaining financial security and future access to credit.

After settling a credit card debt, the borrower needs to work towards improving their credit score by timely payment of their other loans, reducing unnecessary expenses, and using credit wisely. Financial discipline prevents one from such situations in the future. Seeking advice from a financial advisor is also helpful in managing debts efficiently.

Frequently Asked Questions (FAQ’s)