Credit Card Debt Settlement Services: Five Things You Need To Know

Credit card debt settlement is becoming increasingly popular. It's no wonder, with more and more consumers racking up thousands of dollars in debt. However, credit card debt settlement isn't always everything it's cracked up to be. If you're thinking about signing up with one of the many credit card debt settlement services out there, there are some things you really need to consider.

1. Understanding the Basics

First, let's make sure you understand what credit card debt settlement is, and what it is not. Credit card debt settlement is not about your creditors writing off your debt without you paying another penny. With credit card debt settlement, you do have to pay a one-time lump sum and in exchange for this amount of money, your credit card company writes off your debt as being paid in full.

So how much will you have to pay? This all depends on how much money you owe and your personal financial situation. In most instances, the amount of a credit card debt settlement is somewhere between 30 and 50 percent of the original amount of the debt.

If your debt is $3,000 you can expect to pay somewhere between $900 and $1,500 in a credit card debt settlement. That isn't, however, written in stone. In rare instances a settlement can be as little as 5 percent of the balance or as much as 95 percent.

2. Want Some Pie In The Sky?

At this point in time, credit card debt settlement probably sounds good. I mean, who wouldn't want to pay off their debt with just a fraction of what they owe? Unfortunately, it's not always as easy as the credit card debt settlement companies say it is.

First and foremost, a credit card debt settlement service can't promise you anything until they have it in writing from your creditors. In fact, some debtors don't even qualify for credit card debt settlement, so a company giving you promises without some in-depth analysis is a big red flag. If you call XYZ Debt Settlement and they tell you they can get your bills paid off for 20 percent of what you owe, you'd better hang up the phone and call someone else.

A legitimate credit card debt settlement service will be up front about the fact that unless they have pre-arranged debt settlement agreements with your creditors, they won't be able to quote you any firm numbers until they have negotiated on your behalf.

3. The Credit Factor

Credit card debt settlement can (and probably will) affect your credit. That doesn't, however, mean that it's going to affect it negatively.

If you've had pretty good credit up until now and you don't have many late payments in your credit history, your credit score may take a dive after you arrange for credit card debt settlement. That being said, if you have many outstanding accounts in default with numerous late payments, credit card debt settlement can actually help improve your credit score.

4. You Need The Cash

Before you get all gung ho about credit card debt settlement, remember that the money has to come from somewhere. When you negotiate a credit card debt settlement, in most cases the credit card company is going to expect the amount you negotiate in full.

If you owe $3,000 and you settle for $1,000, you'd better have that $1,000 on hand to give to the credit card company. If you don't yet have that $1,000 yet, don't negotiate your settlement until you do.

I always suggest scraping together enough money to cover fifty percent of the balance owed. If your settlement ends up being less, keep that extra money in savings or use it to pay down other debts. If the credit card company wants more, tell them you'll send them what you have and ask if you can pay off the rest of the settlement over 90 days.

5. The Fee Issue

When it comes to credit card debt settlement services, you are going to pay a fee for the services they provide. Considering that most consumers can't negotiate a debt settlement as well as some of the reputable services, the fee may well be worth it.

That being said, if a credit card debt settlement service asks you to send them a fee up front and before they have actually settled your debt, don't fall for it. Unfortunately, there are some scams out there and when someone wants you to send them money without any guarantee on their part, it's usually a rip off.

While credit card debt settlement can be a bit time consuming, confusing and sometimes even stressful, it is a great alternative to bankruptcy. If you find yourself in the position of no longer being able to pay your bills, a credit card debt settlement may indeed be the solution you've been looking for.