Do I Settle With a Credit Card Company or Let It Go to Collections?

If you accumulate a large amount of debt on your credit cards, the minimum payments can be hard to keep up with. You may be forced to choose between settling your debt and allowing the account to go into collection. Both of these options are unattractive, but one may be better than the other depending on your situation.

Settling a Debt

One of the options that you have when you get behind on a debt is to settle it. A debt settlement involves paying the creditor less than what you owe on the account. For this process, you typically have to be able to offer a lump sum of money that you can pay all at once. The creditor then takes less than the balance on the account and closes it out. Negotiate directly with the creditor to accomplish this.

Collections

If you refuse to make any payments or settle your debt with a credit card company, it will be turned over for collection. The credit card company will most likely send your account to their internal collection department first. If that does not work, they will then turn your account over to an outside collection agency. The outside collection agency will attempt to call you and send you letters until you pay the debt that you owe.

Judgment

While the initial part of the collection process may not be very painful, eventually it could lead to negative consequences for you. If the collection agency is unable to contact you or come to an agreement, they can file a lawsuit against you. At that point, they can take the case to court and get a judgment against you. If a judgment is issued against you, the court can garnish your wages or levy your bank accounts to repay the debt.

Control

If you have the ability to settle your debts now, it would give you control over the process. With debt settlement, you can choose exactly when you pay, and you can get a discount on the amount that you owe. If you allow your account to go into collections and ultimately to court, you will have no control over how your debt is paid. It could put you into a serious financial hardship when your wages are garnished. If you do not have enough money to settle your debts, you may work out a payment plan with the collection agency instead.