Have you heard of the term ‘settlement of credit cards’? This is an option you can rely on when you do not have the funds to pay your credit card bill in full due to the loss of a job or a financial emergency.
It involves coming to an agreement with your credit card company where you pay less than the outstanding balance to settle your credit card debt. While it can be helpful in some ways, it can also decrease your credit score, which makes it challenging for you to get access to credit in the future. Opt for it only when you really need to.
Read on to learn what is credit card settlement, the processes to follow and more.
Credit card settlement does not mean that you clear your dues in full. Instead, it implies that you as the cardholder pay only a small part of your outstanding balance to the issuer.
Here are the reasons why you may write a settlement letter for a credit card:
Also Read: Benefits of Using a credit card
Here is the credit card settlement process you will need to follow to settle your dues:
Note that the credit card companies may or may not accept your settlement request.
The settlement of credit cards negatively impacts your credit score, but not as much as not repaying your dues. In India, the credit card settlement process is quite strict. Your credit report will reflect the settlement for the next 7 years. However, your credit score will bounce back gradually when you repay your other debts responsibly.
If you can’t pay the bill in full, opting for settlement of credit cards may be the right option. However, there are some other options you can try to clear your current debt without a significant impact on your credit score:
By choosing the balance transfer facility, you can transfer your outstanding balance from the existing card, which has a higher interest rate, to another credit card having a lower annual percentage rate (APR). This will help lower your interest rates and ensure you can repay the dues with some financial planning and prioritisation.
A personal loan has a much lower interest rate compared to the credit card APR. Hence, you can get this loan to clear your credit card dues and significantly reduce the borrowing cost. Your repayment will also be in EMIs, which can help ease the financial strain caused by a huge credit card debt.
While credit cards have a higher range of interest rates, a personal loan offers funds much more affordably. Hence, you can consider availing of a quick and hassle-free Fibe Instant Personal Loan of up to ₹5 lakhs to clear your dues. These loans come with an easy repayment schedule, which can extend up to 36 months.
Alternatively, you can opt for the Fibe Axis Bank Credit Card to enjoy added security and up to 3% cashback on your transactions. Download the Fibe App or log in to our website to apply online and enjoy a simple application process.
Whether opting settlement of credit cards is suitable for you depends on your financial situation. Credit card settlement may be a good option if you find clearing your dues difficult. However, settlement can negatively impact your credit score. Hence, weigh its pros and cons and the alternatives before going for credit card settlement.
Once you opt for the credit card settlement, the issuer terms your credit card account as a default.
While you can’t use the same credit card after settlement, you can apply for a new one once your credit score bounces back.
Once you apply for credit card settlement, your CIBIL score takes a hit. However, you can bring it back up by following good credit practices. Note that it will take some time for your score to bounce back.