What is Credit Card Settlement? advantages and disadvantages

In today’s time, the use of credit cards has become an important part of every person’s life. On the one hand, the facilities of credit cards make our financial life easier in many ways, if it is not used properly, they can trap us in the debt trap. When a person is unable to pay his credit card bill on time and finds it difficult to repay the loan, then he can resort to “Credit Card Settlement or Credit Card Loan Settlement” as an option.

Credit Card Settlement is a process in which a person negotiates with the bank or credit card company to reduce his debt. In this, the entire sum of the loan is minimized under a new deal and the customer has to pay less. It is one form of debt settlement and will be beneficial to the one who cannot pay off the loan.

Although there are some advantages of Credit Card Settlement, such as paying less amount, getting rid of debt, and getting mental peace, there are some disadvantages with it. This can hurt your credit score, which may make it difficult to take a loan or get another credit card in the future. Also, this process can be long and complicated at times.

In today’s article, we will learn in detail about the advantages and disadvantages of Credit Card Settlement, so that you can make this decision wisely.

What is Credit Card Settlement?

Credit Card Settlement is a process in which you reduce your loan outstanding debt and decide on a new amount. This means that you settle for a part of the loan that you are unable to repay by agreeing with the bank or loan company.

, as well as an example, that has been described. For example, if you have borrowed a loan of ₹1,00,000; and you are not even able to repay the money, then the bank takes the lesser amount from you of that ₹60,000 as well. After this entire procedure, your debt is zero for you.

However, this can affect the credit report, and it can be hard to take any loans in the future. It is an option available to those who cannot return the loan, but that has to be adopted sensibly.

What are the benefits of Credit Card Settlement?

Here are some of the major benefits:

• If you have not been able to repay the loan for a long time, you can negotiate with the bank to reduce or repay the loan, which can make it easier to implement other financial plans in the future.

• Reducing the increasing pressure of debt can reduce mental stress, as you are now ready to repay a pre-decided smaller amount.

• After settlement, you have to pay a lesser amount instead of the full amount. For example, if you have an outstanding amount of ₹ 1,00,000, the bank may offer to take ₹ 60,000 from you.

• After Credit Card Settlement, your loan is over, giving you peace of mind and relief from the pressure of debt.

• If you tried to repay the loan on time and then settled, your credit report may improve, although it may be slightly affected.

How does Credit Card Settle to work?

Credit Card Settlement is a process in which you compromise with the bank by reducing your outstanding amount. If you are unable to pay the entire loan bill and are facing problems in repaying the loan, then you can contact the bank and request to settle the loan.

The bank will negotiate with you and may offer you to pay a lesser amount. This usually happens when the bank feels that it is difficult to repay the entire amount, and they are ready to accept only a part of the loan.

After settlement, you have to pay the stipulated amount, and then your loan is completely over. However, this process can affect your credit report, and it may be a little difficult to take a loan in the future. Therefore, one should think carefully about all aspects before using it.

What are the eligibility criteria for Settle Credit Card?

There may be some conditions and eligibility criteria for settlement:

• Generally, you are eligible for settlement only if you have a large outstanding loan amount and you are not able to repay it on time. The bank does not offer settlement for small dues.

• If you can prove that you are not in a position to repay your loan bill in full (such as loss of income, medical emergency, etc.), then you can apply for settlement.

• If you are not able to pay the loan bill regularly for a few months, then the bank may give you the option of settlement.

• You have to contact the bank and explain your financial situation to them. Only after this, they will consider your settlement process.

• The bank can reduce the total amount of your loan during settlement, but for this, you must have the option to accept the terms of the bank.

What is the process of Credit Card Settlement?

The settlement process is simple:

• First, you approach the bank or financial institution that issued your loan. You explain your financial situation, such as why you are unable to repay the loan.

• After the bank understands your situation, they will give you a settlement offer. This will reduce your total loan amount and provide a new payment proposal.

• If you find the bank’s settlement offer acceptable, you agree to its terms. This usually involves paying a reduced amount.

• As per the settlement terms, you have to repay the stipulated reduced amount either in one go or in a few installments. Once this amount is paid, your loan is over.

• After the payment is complete, the bank will give you a certificate or confirmation in writing that your loan amount has been fully cleared.

What are the things to keep in mind while doing Settle Credit Card?

• Credit Card Settlement can hurt your credit report, which may make it difficult to get a loan in the future.

• Read and understand the proposal given by the bank for settlement carefully. It is important to know how much amount is to be paid and what are the additional conditions.

• The bank may reduce your outstanding amount in settlement, but this does not mean that your responsibility is completely over. You have to repay the reduced amount on time.

• It is very important to make the payment within the time limit set by the bank. If you do not pay on time, the settlement process may be canceled.

• The entire settlement process should be taken in writing, such as getting a written confirmation from the bank that your loan amount has been completely settled.

• Once you settle, you should focus on your expenses and avoid taking loans again.
• If you think you can avoid the settlement process, first consider other options such as EMI consolidation, loan refinancing, etc.

What are the measures to improve CIBIL score after Settle Credit Card ?

Some measures can be taken to improve the CIBIL score properly:

• The most important thing is to pay the bill of any loan or debt on time in the future. Making timely payments improves your CIBIL score.

• Keep in mind the credit limit on the loan. Do not spend more than 30% of your credit limit. This will improve your CIBIL score.

• The less debt you have, the better your CIBIL score will be. If you have many loans, try to repay them quickly.

• Check your CIBIL report from time to time and make sure there are no mistakes in it. If there is any wrong information, contact the bank to correct it.

• Avoid taking new loans after Credit Card Settlement, as it can hurt your CIBIL report.

• Use online and automated payment options to make loans, loans, or other payments on time, so that you do not forget.

• Make a well-informed decision before taking a new loan. If not needed, avoid taking it.

Is Credit Card Settlement the right option?

It is important to keep some things in mind before adopting it:

• Credit Card Settlement can deteriorate your credit score since it indicates you haven’t repaid the full amount of the loan amount. And, this affects your opportunity to get another loan or loan in the future.

• Options like refinancing loans or creating an EMI plan may fail in case a long-term settlement is not viable.

• Settlement ends your loan, but for this, you have to compromise with the bank and agree to some terms. You have to pay a fixed amount, which can be less than your dues.

• Settlement is a serious decision, as it can affect your credit report. Consider all aspects before opting for it and make sure it is right for you.

What are the ways to avoid Credit Card Settlement?

• The most important way is to pay your loan bill on time. If you pay on time, you will not need a settlement.

• Spend within your loan limit. Overspending can increase your debt, which can make it difficult to repay it later.

• If you are unable to pay the entire bill at once, you can opt for paying on EMIs. This will give you more time to repay the loan and you will not need settlement.

• If your income is low, take measures to increase income like taking up a part-time job or any additional work, so that you can repay the loan easily.

• Keep the loan limit limited according to your expenses. This will help you avoid overspending.

• Set up automated payments for your loan bills so that you never forget to pay and make timely payments.

• Keep a proper track of your expenses and income and create a budget. This will help you understand your financial situation and repay your loan on time.

What are the disadvantages of doing Credit Card Settlement?

• After settlement, you have to pay a lesser amount at once, but if you do not repay this amount on time, then you may have to face more trouble.

• In some cases, if you are unable to repay your amount even after settlement, the bank can also take legal action.

• After settlement, you have not repaid your entire loan amount, which can lead to mental stress and financial problems in the future.

• Doing Credit Card Settlement can reduce your CIBIL score, as it shows that you have not repaid your loan amount in full. This can make it difficult to get a loan in the future.

• After settlement, the bank will not see you as a reliable customer, and may not give you a loan easily in the future.

• If you take a loan again, the bank can fix higher interest rates for you, because it saw that you had not repaid your loan amount in full earlier.

Conclusion

Credit Card Settlement is a course of action where you do not have the money to pay for the debt, but with its advantages and disadvantages, you consider settling on this. If you are not able to repay your entire loan amount, settlement can help you reduce your debt, but it also comes with some significant risks, such as a negative impact on your CIBIL score and difficulties in getting a loan or credit card in the future.

If you pay your credit card bill on time, spend within your credit limit, and make proper financial planning, you can avoid a situation like Credit Card Settlement. Apart from this, if the debt situation is serious, options like loan refinance or EMI can also be used, which will help you make timely payments.

Finally, Credit Card Settlement can be an immediate solution, but use it only when all other options are exhausted and you understand its impact. Take this path only after properly understanding the terms and conditions associated with it. To improve your financial future, you must manage your debt with precise planning and responsibility.

Frequently Asked Questions (FAQ’s)