There are multiple ways for people to address major financial responsibilities. People with credit card debts may try consolidating what they owe or even transferring the balance from one credit card company to another.
In some cases, they might work with a private company offering to help settle credit card debt. These businesses advertise to consumers by claiming that they can help people eliminate their credit card payments by paying a fraction of the total balance due. While that may feel ideal to those with overwhelming credit card debt, there’s a potential dark side to credit card settlement.
Settlements can cause credit issues
Credit card settlement can cause multiple issues with a person’s credit. First and foremost, the settlement of a credit card balance may lead to a blemish, as the lender can report it as settled rather than paid in full.
Additionally, closing multiple lines of credit in rapid succession or on the same day during settlement negotiations can significantly drag down an individual’s credit score. Finally, credit card settlement services often provide loans used to provide lump-sum payments to credit card companies. Those loans may have less-than-ideal terms for the borrower.
Those worried about managing their credit card debt may want to consider bankruptcy instead of a settlement. Bankruptcy eliminates the obligation to repay the debt through a discharge instead of simply moving it to a different lender. Bankruptcy does negatively affect a person’s credit report, but that impact is temporary.
Learning more about the drawbacks and different debt solutions can help people choose the best options available. Credit card settlement can often do more harm than good for people struggling with revolving lines of credit.