How do I Settle Credit Card Bills?

The Federal Trade Commission advocates a host of options for consumers in debt, including credit counseling, debt consolidation and debt settlement. Debt settlement can eliminate credit card debt completely but reflects poorly on credit reports. A settlement offer from your credit card company allows you to pay a fraction of your balance, and the entire debt is forgiven.

Instructions

1

Evaluate settlement letters. According to Bankrate, if there have been no payments on an account for more than 180 days, by regulation, credit card companies report the account as bad debt and charge it off. A credit card company or a collection agency will then send out debt settlement letters to defaulted account holders. These offers suggest debt reduction by paying cents on the dollar. Compare the proposed settlement amount with your income situation. Remember that most debt settlements require a lump-sum payment.

2

Request a formal, written settlement offer. A debt settlement has many ramifications on credit reporting. After deciding on the settlement amount, negotiate with the creditor about credit-reporting and obtain a written copy of the offer before making payment. While past delinquency and account charge-offs generally remain on credit reports for seven years, upon receiving debt settlement payment, the creditor is obligated to report to credit bureaus that the account has been paid as agreed or as settled. The credit report should then show a zero balance on the charge-off account, which can help your credit rating.

3

Check your credit report and follow up on the debt-settlement reporting. By settling your credit card bills, you honor the original contract to the extent of your financial ability. Try to preserve your credit rating to the extent that you can. If your creditor fails to update your account information with credit bureaus after the settlement, you can contact credit bureaus directly to explain the situation and request that your account information be corrected.