Credit Card Settlement Process

Choose Who Will Settle

Begin the settlement process by determining who will be controlling and negotiating the settlement with the credit card companies. When economic conditions are poor, multiple debt settlement companies pop up with the promise to help settle debt. Many companies have been around for a long time and have good relationships already with creditors to help in the negotiation process, a feature which will serve well when settling. Also keep in mind that all debt settlement companies will charge a fee for service, but some will have higher fees, as well as hidden fees, so be sure to research what your obligations are before choosing a company. When considering a company, do some homework, such as contacting the Better Business Bureau, to learn if the company under consideration is a good or a bad one.
Settling on your own, without the outside help of a debt settlement company, is also an option. While it may require more effort on the debtors part, it is feasible to do.

Create Settlement Fund

Whether signing with a settlement company or settling individually, the first step in settlement is starting a settlement fund. Often this is a separate account where money is set aside each month, as opposed to being put toward credit card payments. While this money builds up each month, creditors will inevitably call and write in an attempt to receive the money that hasn't been collected each month. It is usually advised that all attempts to collect be ignored throughout this period. Note that during this time, creditors will make reports to credit bureaus that will impact credit scores negatively.

Negotiate Settlement

After a period of receiving no payments from the debtor, creditors are more willing to settle on one lump-sum payment as an alternative to receiving no money at all. Whoever is negotiating the settlement will begin to discuss the settlement amount at this point. Often, accounts are settled at 25 to 50 percent of the amount owed on the account.

Make Settlement Payment

Once the settlement amount has been negotiated, it is paid by the debtor in full as one large payment. The account will then show on credit scores as "settled in full," or sometimes "paid in full," depending on the creditors preference.

Repeat the Process

For those settling multiple accounts, the cycle begins again with adding funds to a settlement account, negotiating the settlement amount and paying that amount until all accounts have been settled.