Most Indians deal with the pressure of settling credit card dues because the rates and charges may surge fast compared to the overall balance at any given point. Some people may enjoy a saving grace when month-to-month payments become too unaffordable if Credit Card Settlement can absorb the debt partially by clearing out a lesser component of the full debt amount while other components get paid out in full. Although this can be a pretty stressful process that impacts your credit score and even your future financial health, it is very important to know how this works and if it’s appropriate for you.
In this article, we’ll explore the credit card settlement process in India, its pros and cons, the steps involved, and tips on negotiating a favorable outcome.
What Is Credit Card Settlement in India?
Credit card settlement in India is an agreement between a credit cardholder and the issuing bank to settle an outstanding debt for less than the total amount owed. Typically, the bank agrees to waive a portion of the debt if the cardholder makes a one-time or structured payment. This is usually offered to customers experiencing financial distress who are unable to pay the full amount but want to avoid default.
When Should You Consider Credit Card Settlement?
Credit card settlement in India is an agreement between a credit cardholder and the issuing bank to settle an outstanding debt for less than the total amount owed. Normally, the bank agrees to waive a portion of the debt if the cardholder makes a one-time or structured payment. This is usually offered to customers experiencing financial distress who are unable to pay the full amount but want to avoid default.
Credit card settlement should generally be treated as a last resort. This is where the case fits in:
- You are or have been under protracted financial hardship; that has resulted from, among others, job loss, health issues, or reduction of income.
- It becomes unbearable to pay for minimums.
- Your debt level severely outweighs your income levels, and so paying your debts fully seems unattainable.
Avoid Default or Lawsuit: To avoid having your account turned over to collections or having lawsuits filed against you.
Before settling, carefully weigh your financial position and consider other alternatives such as restructuring debt or balance transfer.
Step-by-Step Guide to Credit Card Settlement in India
Analyze Your Financial Position
First, review your financial status: your income, expenses, and other loans. This is a sure way of understanding what amount you can give them so that your choice would depend on a true comprehension of the state of your finances.
Contact the Credit Card Company
You will directly reach out to the credit card company or bank either through the customer service or collections department, stating your case clearly, including the reason and explaining your desire to settle the debt. Most banks would consider settling if they felt that a settlement is the only means through which they can recover part of the amount due.
Present your proposed settlement amount
Prepare to negotiate the amount that you can pay. Ideally, banks will settle at 30-70% of the total outstanding, depending on your financial status and duration of default. The sum should be a figure that you can handle in order to avoid more strains.
Draw up the Agreement in Writing
Once the bank accepts a settlement, request them to put this in writing. This paper should indicate the amount due, pay schedule, and any further conditions agreed upon. Getting this in writing is necessary to avoid miscommunication, and it acts as proof that the settlement has been accepted.
Make the Payment as Agreed
Once you receive the written agreement, you proceed to make the payment as agreed. Most settlements require a lump sum, but in some cases, banks will accept that you pay it structured over time. Ensure you get a receipt or proof of payment for your records.
Check Your Credit Report
After the settlement, you should check your credit report to ensure that the status of the settled account is updated appropriately. The account may be marked as “Settled” or “Closed.” This means that the debt was not fully paid, but it also shows that you took action to resolve the issue.
Key Points to Consider Before Settling a Credit Card Debt
- Negotiation Leverage: All depends on the factors like the payment history, outstanding amount, and the length of default. If they think this is the only hope of getting their money back, they will yield more.
- Tax implications: The forgiven portion of the debt may be considered income in India and hence taxable. Refer to a tax professional for further clarity.
- Alternative Options: Before settling, consider alternatives such as debt consolidation, restructuring, or a balance transfer. These options might offer more manageable terms without the drawbacks of a settlement.
Impact of Credit Card Settlement on Credit Score
It comes with its implications, especially when paying off the credit card debt, particularly in terms of credit score. Here are how effects the credit:
Lower Credit Score: The settlement is not paying the loan fully, which means that it has a low credit score. However, settlements usually are much better than a full default and litigation process.
Account marked as “Settled”: The credit report shows that the account has not been paid based on the terms and agreement made initially. This mark appears on your report for up to seven years and affects your creditworthiness.
Probable Problem About Future Credit: Settlements would most likely not look that good when lenders are reviewing credit applications later on. Yet good, responsible credit behavior will allow your credit score to recover gradually.
The settlement information is also tracked from the credit information companies, such as CIBIL in India. That affects the CIBIL score and loan eligibility for several years.
Conclusion
Credit card settlement in India offers an exit to manage huge debt with a smaller amount and brings relief to the distressed. But the short-term borrowing capability and credit score do get affected with credit card settlement. Settling may be better than worse alternatives, like default or judicial action.
Before settling, you need to ensure that you weigh the pros and cons carefully, seek alternative debt management options, and ensure what happens with your financial and credit score. Then you can work towards solving your debt and rebuilding your financial health. You have planned properly and informed your lender.
Frequently Asked Questions (FAQ’s)
Ans: No, settling a debt means paying a portion of the outstanding amount, which the bank agrees to accept as full repayment. Paying off debt involves repaying the total amount owed.
Ans: No, a settled account will stay on your credit report for up to seven years. It reflects that the debt wasn’t fully paid, which can impact your credit score and loan eligibility.
Ans: Yes, you can negotiate directly with the credit card issuer. Alternatively, some people work with debt settlement agencies, though they typically charge fees for their services.
Ans: Once a debt is settled and the payment is complete, collection actions for that particular debt should cease. However, if the settlement terms aren’t followed, the bank may resume collection efforts.
