How to apply for Credit Card Settlement? complete process

Summary

Credit Card Settlement is a better option for those who are unable to repay the increasing debt. In this process, the bank or credit card company can waive off a part of your total outstanding amount, provided you pay the fixed amount in a lump sum. But it impacts your CIBIL score, which can make it hard to obtain a loan in the future.

If you wish to apply for a settlement, then first verify your financial health and call the bank. The bank will make a settlement offer based on your present income and outstanding liabilities. If you consider this offer acceptable, then take it in writing and make the payment within time. Once payment is made, never forget to take a No Due Certificate (NOC) from the bank so that any future dispute can be avoided.

Even settlement seems to be a straightforward solution, it also has certain drawbacks. Your CIBIL score would deteriorate, which would be hard to secure any kind of loan in the future. Therefore, if feasible, go for EMI payments, balance transfer or other loan repayment schedules to avoid settlement.

Remember credit card settlement as a last option and in the future, manage your expenses, pay bills on time and develop good financial practices to enhance your credit score. Not only will this liberate you from debt but also propel you toward a financially secure future.

Introduction

Nowadays, credit cards have become an important part of our financial lives. It helps us to handle sudden expenses and reduces the need for cash. However, if the credit card is not used properly, it can become a financial burden. Many times, people are not able to pay the increasing credit card bill on time, due to which heavy interest and penalty charges start being levied on them. In such a situation, if your credit card dues have increased and you are unable to repay them, then Credit Card Settlement can prove to be a great option for you.

Credit Card Settlement is a process in which the bank or the credit card issuing company waives off some part of your total credit card dues and allows you to pay the remaining amount as a lump sum payment. It proves to be helpful for those who are not in a position to pay the full amount but want to end their liability.

The process of applying for Credit Card Settlement is simple, but it is important to keep some important things in mind. First of all, you have to assess your financial situation and decide how much you can repay. Then, you have to contact the bank and tell them about your problem. Usually, the bank gives you a settlement offer based on your payment capacity, which you can accept or negotiate.

Before doing a Credit Card Settlement, you should make sure that you read all the terms and conditions given by the bank and take measures to improve your credit score in the future. If you follow this process correctly, it can help you get out of the burden of debt.

Further in this article, we will know in detail what documents are required for Credit Card Settlement, under which circumstances it can be the best option, and why it is important to pay attention to the precautions related to it. If you also want to reduce your credit card debt, then it will be beneficial for you to understand this entire process.

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.

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 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 to 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 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.

How to apply for Credit Card Settlement?

If you are unable to pay your credit card dues and are troubled by heavy interest rates, Credit Card Settlement can be a possible solution. Under this process, the bank or credit card company can waive off part of your total outstanding amount and give you the option to make a lump sum payment (One-time Settlement). However, this can affect your CIBIL score, so adopt it only as a last option.

Step-by-step process to apply for Credit Card Settlement

• First of all, decide that you are not in a position to pay the entire credit card dues.

• Check your income and expenses and decide how much you can pay at the most.

• Talk to the customer care of your bank or credit card company and tell them about your current financial situation.

• Ask for a settlement offer from the bank and start the conversation.

• The bank will propose a settlement amount, which will be lower than your outstanding amount.

• If you don’t accept this amount, negotiate with the bank and attempt to lower the amount based on your capacity to pay.

• After the bank and you reach an agreement on a specific amount, ensure that you receive a written settlement letter.

• It should explicitly state the settlement terms, payment dates, and other conditions.

• After completing the settlement, pay the amount in full within the given time.

• Get a No Due Certificate (NOC) or Final Settlement Letter from the bank after the payment.

• After the settlement, make sure the bank updates the “Settled” status in your CIBIL report.

• This can affect your credit score, so inculcate good financial management habits to improve it in the future.

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

A settlement can hurt your credit score. The impact can be seen in the following ways:

• After the settlement process, your credit 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 advantages (Pros) of doing Credit Card Settlement?

It has many advantages, which are as follows:

• Although 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.

• 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.

• 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.

What are the disadvantages (Cons) of doing a Credit Card Settlement?

It has many disadvantages, 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.

• Due to 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.

• 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.

Conclusion

Credit Card Settlement is an option that can prove to be helpful for those who are not in a position to repay their increasing credit card debt in full. This process is an agreement between the bank or the credit card issuing company and the customer, in which the bank waives off a part of the total outstanding amount and allows paying the remaining amount in a lump sum.

But it affects your CIBIL score and can prevent you from getting loans or other credit facilities in the future. Therefore, it should be considered only as a last option. If you are experiencing financial troubles and are unable to pay the full credit card amount, you can go to the bank and request a settlement. The bank will offer a settlement based on your financial condition, which you can accept or request changes.

In the process, ensure that the settlement terms are recorded in writing and a no due certificate is taken from the bank upon payment. Nevertheless, prior to settlement, consider EMI payment, balance transfer or other repayment plans of the loan. If settlement is inevitable, keep your future expenses under check, pay on time and make earnest efforts to restore your credit score.

Frequently Asked Questions (FAQ’s)