How to reduce the credit card settlement amount?

Summary

The use of credit cards has become common nowadays, but sometimes, due to high expenses or a financial crisis, we are not able to pay on time. In such a situation, when the outstanding amount increases a lot, the bank gives the option of credit card settlement. Although this option provides relief, the settlement amount demanded by the bank is also high at times. In such a situation, the question arises – can this amount be reduced further?

The answer to this is yes, if you adopt the right strategy, then it is possible to reduce the settlement amount. First of all, you have to provide proof of your financial condition. For this, a bank statement, proof of job loss, medical expenses, or other necessary documents can be used. After this, if you are ready to pay a lump sum amount, then you should also tell the bank about it because the bank often gives more concessions on lump sum payments.

Also, if you are having trouble negotiating, then the help of loan advisors or debt counseling institutions can be sought. They can negotiate on your behalf and improve the terms of settlement. Apart from this, honesty and politeness are also very important while talking to the bank.

Introduction

In today’s time, credit cards have become an important financial tool for every person. It not only makes our shopping easier, but it is also very useful in times of emergency. However, sometimes due to excessive expenditure, wrong financial planning, or any emergency (like losing a job or any medical emergency), we are unable to pay the credit card bill on time. In such a situation, when the outstanding amount increases a lot, the bank or the card issuing company gives us the option of credit card settlement.

But settlement does not mean that all your dues are waived off. Actually, in this, the bank and the customer negotiate with each other and settle for a fixed amount, so that the bank also suffers a little less loss and the customer also has less burden of a lump sum amount. This is called the settlement amount. But this amount is also so much at times that it becomes difficult for the customer to pay it.

Now the question arises – can the settlement amount be reduced further? So the answer is – yes, if you talk in the right way, keep your documents ready, and can convince the bank that you still cannot pay too much, then the bank or financial institution may agree to reduce your settlement amount.

In today’s article, we will know in detail what can be the practical and legal ways to reduce the credit card settlement amount, what things should be kept in mind, what mistakes should be avoide,d and h,o w with the right strat,egy you can convince the bank for a lower amount. So let’s start with an easy and sensible discussion on this important topic.

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 a Credit Card Settlement.

What are the features of Credit Card Settlement?

The following are some of its main features:

• The process of Credit Card Settlement is easy. You have to contact Home Credit and agree to their terms.

• The settlement process is completed quickly, which helps you stabilize your financial situation.

• After the settlement, Home Credit issues a No Due Certificate, which proves that your loan is now complete. 

• Doing a Credit Card Settlement can affect your credit score. It is recorded as “settled” in your credit report, which can create difficulty in taking loans in the future.

• This option is available only when the borrower is completely unable to repay the loan and has used all other options.

• In Credit Card Settlement, you do not have to repay the entire loan amount. You can settle your loan by paying only a certain part.

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 is the difference between a Personal Loan Settlement and a Credit Card Loan Settlement?

Although both Personal Loan settlements and Credit Card Settlements aim to provide relief to the borrower, there are some important differences between them.

Points of Difference	Personal Loan Settlement	Credit Card Settlement
Type	Settlement of any type of loan (personal, home, car, education, etc.)	Settlement of Credit Card dues only
Settlement Process	The bank fixes a lump sum amount, on payment of which the loan gets settled.	The credit card company settles the amount at a fixed rate.
Impact on CIBIL score	CIBIL score may drop by 50-100 points, and it may become difficult to get a loan in the future	There is a huge impact on the CIBIL score, and it may be difficult to get a new credit card.
Possibility of getting a loan in the future	You may face problems in getting a home loan, a car loan, or any other loan.	Credit card companies may refuse to issue the card.

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 a 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 credit report after the settlement. Make sure the credit card settlement details are recorded correctly.

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.

How to settle your credit card without spoiling your credit score?

A credit card is a very useful financial tool, but if not used properly, it can also lead to heavy debt. Many times, people have trouble paying credit card dues due to financial difficulties. In such a situation, credit card settlement can be an option, but it often hurts the credit score.

However, by adopting some smart methods, you can settle your credit card without spoiling your credit score. Let us understand in detail how you can settle the credit card dues properly and keep your credit score safe.

Methods of credit card settlement without spoiling the credit score

(i) Discuss the repayment plan with the bank

If you are unable to repay the credit card dues in one go, then you can ask for an EMI or repayment plan from the bank. Many banks offer their customers the option of repayment under flexible payment terms, which allows you to pay gradually, and your credit score is also not affected.

(ii) Choose the option of balance transfer

If you have more than one credit card, you can transfer the balance to a credit card with a lower interest rate. This will help you avoid high interest and repay your debt gradually.

(iii) Pay by taking a loan

If your credit score is good, you can pay off the credit card by taking a personal loan. Usually, the interest rate of a personal loan is lower than that of a credit card, which can give you financial relief.

(iv) Negotiate with the bank

If your financial situation is bad and you cannot pay a lump sum, try to negotiate with the bank. Some banks offer customers flexible payment options instead of “lump sum settlement”, which keeps your credit score safe.

How to improve CIBIL score after credit card settlement?

10 best ways to improve CIBIL score after credit card settlement:

1. Check the CIBIL report carefully

Before starting the process of improving your credit score, you should check your CIBIL report thoroughly. For this, you can download your report from the official website of CIBIL.

• Check if there is any wrong information in your report.
• If there is any mistake, report it to CIBIL to correct it.

2. Change the settlement status to ‘Closed’

When you get a credit card settlement, the bank reports it as “Settled”. This status hurts your credit score.

• You can request the bank to update it as “Closed”.
• If possible, change it to “Fully Paid” by paying the remaining amount.

3. Make all payments on time

The most important thing to improve your credit score is to make payments on time.

• Pay all your loans and credit card EMIs on time.
• If there are any old dues left, clear them as soon as possible.

4. Get a new credit card and use it responsibly

If your credit score is not too bad, you can get a low-limit credit card and use it properly.

• Make small expenses every month and pay the entire bill on time.
• This will gradually improve your CIBIL score.

5. Keep the credit utilization ratio below 30%

• If your credit card limit is ₹1,00,000, try not to spend more than ₹30,000 every month.

• This shows that you are using your credit limit wisely.

What are the common mistakes related to Credit Card Settlement?

Below, we are discussing some common mistakes related to Credit Card Settlement in detail:

1. Considering settlement as a loan waiver

Many people think that after settlement, all their dues are forgiven. Whereas the truth is that the bank does forgive you some amount, but the remaining payment is recorded as “Settled” in the report, which negatively affects your CIBIL score.

2. Not taking the settlement agreement in writing

While settling, people rely only on phone calls or verbal conversations, but without written consent, this is a big risk. If you do not have a written document, then in the future, the bank can start recovering the dues against you again.

3. Not checking the CIBIL report

After the settlement, it is important that you check your CIBIL report and ensure whether the status, like “Settled” or “Paid,” is updated correctly or not. Many times, banks forget to update the report, which affects your credit history.

4. Settling without complete information

People often settle due to the words of the agent or due to fear, without understanding what its effects will be. Whereas they should first consider options like EMI restructuring, part-payment, or asking for time.

5. Settling immediately due to fear of the bank’s recovery agent

Many times, recovery agents threaten or intimidate on the phone, due to which people get scared and settle without thinking. Whereas you should be aware of your rights and not pay any amount without a written agreement.

Is Legal Credit Card Settlement?

In India, credit card settlement is a legal procedure accomplished by mutual agreement between the customer and the bank. This occurs when the client fails to pay the entire credit card debt; the bank works with him and waives off the remaining loan by deducting some sum. We know this as “settlement”.

Let us delve more to grasp it precisely:

How does the credit card settlement process go?

The bank or card issuing company gets in touch with a consumer when someone is late in paying the credit card debt. Should the customer’s financial situation be very dire and he is unable to pay the entire amount, the bank provides an alternative: closing the account with a lump sum one-time settlement. Usually, this sum is less than the principal value.

Does RBI know about this?

Indeed, if it is carried out under appropriate supervision and documentation process, RBI has let banks go for “One Time Settlement” (OTS) or “Loan Restructuring”. RBI also makes clear, nevertheless, that banks should verify client payment capability and settle only in circumstances of a genuine financial crisis.

But be aware:

• Your CIBIL score suffers in settlement.

• The credit record shows settlement as “Settled” or ” Written-Off,” which could cause issues obtaining a loan or credit card down the road.

• It is advisable to obtain a NOC (No Objection Certificate) from the bank even after settlement, so as to prevent future conflict. 

• When you have no other answer, settlement ought to be your last alternative.

How to get a Closure Letter from the Bank after Credit Card Settlement?

Here we will understand in detail how to get a Closure Letter from the Bank after settlement, as well as what things should be kept in mind.

Step-by-Step Process – How to get a Closure Letter:

1. Complete the settlement payment

First of all, make sure that you have paid the settlement amount decided with the bank in full and on time. If any installment is due, the bank will not give the Closure Letter.

2. Contact the bank

As soon as your settlement payment is completed, contact the bank’s customer care or credit card department. You should request that you be provided with a No Dues Certificate or Closure Letter in written form.

3. Send an email or a written application

After contacting the bank, you can send a written request through email or by post. Provide the following information in it:

• Your name
• Credit card number
• Date of settlement
• Amount paid
• Request that a closure letter be sent to you.

4. Keep the payment receipt

Proof of the last payment made by you (receipt or transaction ID) is very important. Scan it and attach it to the email.

5. Follow up

Sometimes the bank delays issuing the closure letter. So if there is no response within 7-10 working days, keep following up via phone/email.

6. Receive the closure letter

Once the bank accepts your request, it will send you the closure letter via email or post. Keep this letter safe.

What should be in the closure letter?

• Mention of your name and card number

• Confirmation of completion of payment

• Proper mention of no other dues

• Official signature and date from the bank

Why is a Closure Letter necessary?

• It is proof that you have fulfilled the terms of the settlement.

• This can help in updating your CIBIL report.

• If any bank asks for your dues in the future, you can show it.

• This proves your financial credibility while applying for a loan or credit card.

What if the bank is not giving the Closure Letter?

• You can file a complaint in the Grievance Redressal Cell of the bank.

• If no solution is found, a complaint can be made to the Banking Ombudsman.

What Happens If You Don’t Accept a Credit Card Settlement Offer?

Let us know the answer to this question in simple language:

1. You will have to pay the entire outstanding amount

If you reject the Settlement Offer, it means that you are not making any compromise with the bank. In such a situation, the bank will recover the entire outstanding amount from you.

2. The bank can send a recovery agent

If you neither accept the settlement offer nor pay the dues, the bank will take the next step – sending a recovery agent.

3. Legal action can also be taken

If the bank feels that you are deliberately not paying the money, they can send a legal notice against you and file a case in court. After this, you may have to appear in court, and after the court order, your property or salary may also be affected.

4. CIBIL score will not be affected (Positive Scenario)

If you do not take the settlement offer, and gradually pay the EMI or the full amount, then it has a good effect. This strengthens your credit history, and the CIBIL score remains better.

Note: On accepting the settlement offer, “Settled” is written, which is considered negative in CIBIL, but if you reject the offer and make the full payment, then “Closed” is written, which is better.

5. The option of negotiation remains open

Refusing the settlement offer directly may be your compulsion or strategy. If you think that you can negotiate better terms in the future, then you can ask the bank for the option of restructuring or easy EMI. Some banks show sympathy, especially if you are unemployed or your financial condition is temporarily bad.

How to reduce the credit card settlement amount?

1. Provide proof of your financial situation

It is important to show the bank that you are really in financial trouble. For this, provide these documents:

• Salary slip or proof of job loss
• Bills or reports of medical expenses
• Bank statement
• Income tax return
• Details of monthly expenses

2. Offer a lump sum payment

If you can collect some money, tell the bank that you are ready to make a lump sum payment, but at a lower amount.

Example: If the outstanding amount is ₹80,000 and the bank is asking for ₹60,000, then offer to pay ₹40,000–₹45,000.

3. Contact a Debt Counselor

Many NGOs and organizations in India provide free debt counseling, such as:

• Moneylife Foundation
• Dvara Trust
• Apna Finance

4. Negotiation Strategy

Be polite but clear while negotiating:

• “I wanted to pay the full amount, but my financial situation is not good.”
• “I have an arrangement up to ₹___, please accept it as final settlement.”
• “If you reduce it a little more, I can make the payment immediately.”

5. Get proof in writing

Always get the settlement amount and terms in writing. After payment:

• Make sure to get a NOC (No Objection Certificate)
• Try to change the “Settled” status to “Closed.”
• Keep everything in the form of an email or letter.

6. Will it affect your CIBIL score?

Yes, a settlement can lower your CIBIL score, as it shows that you have not paid the full amount.

What should be avoided?

Don’t consider the phone conversation as final.

Don’t negotiate without a document.

Do not ask for concessions by giving wrong information.on

Do not delay after promising a settlement.

What are the benefits of doing a Credit Card Settlement?

It has many benefits, which are as follows:

• 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.

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

What are the disadvantages of doing a Credit Card Settlement?

It has many disadvantages, which are as follows:

• In the future, the borrower may have difficulty 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.

• During a 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 their freedom.

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

Conclusion

So far, you have learned how to reduce the credit card settlement amount, what the ways to do it are, what documents are required, and what things should be kept in mind. Now, let us understand the essence and conclusion of this whole topic in simple words.

First of all, it is important to understand that credit card settlement is done when your financial condition becomes very weak and you are not in a position to pay the entire dues. At such a time, the bank gives you the option of settlement to give you some relief, so that you can get some relief. But keep in mind, this relief becomes permanent only when you handle the entire process wisely.

Apart from this, if you feel that the settlement amount told by the bank is also high, then there is no need to panic. By adopting some practical and legitimate methods, you can get that amount reduced further. For example, giving authentic documents of your financial condition to the bank, offering a lump sum payment, or taking the help of a loan counselor can make your position stronger.

Frequently Asked Questions (FAQ’s)