What are the quick tips for credit card settlement?

Summary

Credit card settlement is one of the choices that can give a temporary respite in tough financial conditions. When credit card charges keep rising and timely payment is impossible, then this choice can be useful to you.

But before implementing it, it is essential to keep certain things in mind, like contacting the bank personally, having a clear view of the settlement terms and everything should be done in black and white. Also, it is equally important to get a “No Dues Certificate” after settlement and monitor your CIBIL report.

Apart from this, also keep in mind that credit card settlement can hurt your credit history. Therefore, if you can pay the full amount or opt for the EMI option, then it would be more sensible to consider those options first. But if the situation is very serious and a settlement is the only solution, then you can minimize the damage by adopting the quick tips mentioned above.

Introduction

In today’s era, the use of credit card has become an important part of our daily life. Be it online shopping, emergency expenses or booking a travel – credit card has made our financial needs very easy. But, sometimes this facility also becomes a headache, when we are unable to pay the credit card bill on time and gradually the debt increases. In such a situation, when it becomes difficult to pay, “Credit Card Settlement” emerges as an important option.

Credit Card Settlement means to settle the entire outstanding amount by paying some amount at once by negotiating with the bank or the card issuing institution. This process is adopted when the customer does not have the capacity to make the full payment, but he wants to settle his matter with the bank under a one-time settlement. Although it provides relief, it also has some adverse effects, such as affecting the CIBIL score. Therefore, it should be adopted only as a last resort.

Apart from this, you also have to understand that Credit Card Settlement can affect your eligibility to get a loan or credit card in the future. Therefore, you must make a decision thoughtfully without haste.

In this article, we will know what things should be kept in mind while doing Credit Card Settlement and some quick tips that can make this process easier for you. If you are also troubled by the increasing burden of credit card and are looking for a solution, then this article will prove to be very helpful for you. So come, know those important tips which can make your financial health strong again.

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?

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 the 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.

6. Maintain Credit Mix

• If you only have a credit card, take a small personal loan or consumer loan and pay its EMI on time.

• This will improve your credit mix, and the score will improve rapidly.

What are the Quick Tips for Credit Card Settlement?

Below are some Quick Tips that can prove beneficial for you while doing a Credit Card Settlement:

1. Consider all the options

Before doing a Credit Card Settlement, try to choose the option of paying in EMIs (installments) for some time. Sometimes the bank may not make a full payment, but it also gives an easy EMI plan.

2. Contact the bank directly

Instead of an agent or third party, talk directly to the bank or the credit card issuing company. Explain your financial situation honestly and request a solution.

3. Take the settlement in writing

Do not accept any settlement promise only verbally. Always take a written settlement letter from the bank, which contains complete details, such as the settlement amount, date, and that there will be no dues in the future, etc.

4. Know the impact on CIBIL score before settling

Credit Card Settlement can spoil your CIBIL score, because it shows that you did not make the full payment. This will affect your future loans and credit cards.

5. Make a lump sum payment

If possible, pay the settlement amount in one go. This will also increase the trust of the bank, and the matter will be settled quickly.

6. Negotiate

While talking to the bank, try to reduce the settlement amount. If you have paid interest for a long time, then you can ask for a waiver of interest.

7. Get a No Due Certificate

After settling, get a No Dues Certificate from the bank. This will prove that you have settled, and now you do not have any dues.

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 their 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 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 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

Finally, it is very important to understand that excessive use of credit cards and not being able to pay on time can greatly affect your financial situation. Gradually, when this burden starts increasing, it is natural to have stress, mental trouble, and financial loss. In such a situation, “credit card settlement” becomes a way to get you out of this trouble.

However, while doing settlement, it is also important to know that this is only a temporary relief, not a permanent solution. Because once the settlement is done, the tag of “Settled” is added to your CIBIL report, which can become an obstacle in getting any loan or credit card in the future.

Despite this, if your sources of income are limited, you have lost your job, or you are going through an emergency situation, then this option can prove to be better for you – but only when it is adopted with wisdom and planning.

Frequently Asked Questions (FAQ’s)