This article is about credit card settlement, which occurs when a credit card user is not in a financial position to repay the credit card bill. In such a case, they approach the bank or the card issuer and request a settlement. A settlement can involve a number of options from a credit transfer to a converting the credit card bill into an EMI. This article covers the ways in which a credit card settlement is carried out, and what it means for the user and their credit score.

What is credit card settlement?

Credit card users may pile up debt for several reasons. Financial emergencies and reckless expenses are some examples. Whatever the reason, credit card debt might have serious consequences for the user. For instance, their credit score may take a serious hit.

Moreover, the card issuer may serve them with a legal notice. Additionally, it may become difficult for the them to apply for new cards or loans in future. This is not permanent, and can be reversed over time once the repayments are made. The credit card settlement process in India enables customers to pay their dues.

When should you choose a credit card settlement option?

Settlement is not an option you can take whenever you hit a rough patch financially, and are unable to pay your dues. Because financial institutions do not usually approve settlement requests often or easily.

There are high chances that your card issuer may reject your application if you do not pay a lump sum amount. Moreover, the credit card settlement percentage is not uniform. So, the actual settlement amount may depend on how well you negotiate with the card issuer.

Through credit card settlement, the card issuer and the customer come to a mutual agreement. The agreement mentions the amount the customer has to pay and the amount the card issuer has to lose. Generally, debt settlement agencies manage the credit card settlement process in India. The credit card issuer authorises these agencies to collect the debt on their behalf.

These agencies act as the mediator between customers and card issuers. They request the customer to pay the credit card settlement percentage as a lump sum or go for a complete waiver. The word ‘request’ is an understatement here, as these agencies generally resort to harsh recovery tactics which involve everything from intimidation to threats until the dues are paid off.

The process of credit card settlement in India

• Contact your credit card issuer or approach a debt settlement agency.
• Write a credit card settlement letter stating why you cannot repay your card dues.
• Also, write that you want to explore alternative repayment terms. You may also express your willingness to pay a lump sum amount. But, if you have filed for bankruptcy, show that as your reason for not repaying. 
• Wait until your card issuer sends a reply letter. The issuer may or may not accept your settlement request. 

Conclusion

The credit card settlement process allows a customer to reduce their outstanding debt. It also enables the card issuer to recover a part of their dues. But credit card settlement is not easy. Settlement reduces your credit score and the ability to apply for loans or cards in the future.   

Fi Money provides instant loans that arrive directly in your Fi account. These are pre-approved personal loans made available to select users with good credit scores. On Fi, this process is 100% paperless, and the loans are provided at competitive interest rates — where each user remains in control with complete visibility of all details. Plus, you can avoid EMI late fees by setting up automatic in-app payments. Our RBI-licensed partner bank assigns an eligible loan amount to each user (up to ₹5 lakh).

That aside, you can also apply for a credit card on Fi Money. Our card lets you set reminders for when you’ve crossed certain spending limits, or when your bills are due. There’s also the standard auto-debit feature that you can activate to ensure you bill amount is automatically deducted from your savings account.

Frequently asked questions

Is settlement good for credit cards?

No. Credit card settlement affects your credit score negatively. A negative credit score may make applying for new loans or cards difficult. 

What percentage of the credit card bill can be settled?

No fixed rule specifies the credit card settlement percentage. It depends on the analysis done by the card issuer. The card issuer may also reject the application and take the customer to a court of law.

Does credit card settlement affect my CIBIL score?

Yes. Credit card settlement affects the cardholder's CIBIL score negatively. But, the impact will be greater if the cardholder does not pay anything. 

Can credit card settlement be negotiated?

Yes. You can negotiate your credit card settlement amount. Your card issuer may decrease the settlement amount if they feel you are serious about repaying the outstanding due. But note that this is generally quite unlikely. Usually, the credit card issuer will pass the settlement case to a recovery agency that might use some very harsh tactics to recover your bill amount.