Credit Card Debt Settlement Agreement

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A credit card debt settlement agreement is a contract between a credit card company and you, the debtor. After about six months of delinquency on an account, card companies often agree to accept a reduced amount as payment in full or settlement in full, depending on the agreement you reach. Once the settlement check clears, your creditor closes the file and reports the corresponding status to the credit bureaus - no more phone calls or bills regarding your settled debt. However, in order for a debt settlement to work to your advantage, the agreement must contain the right information.

1. The debt settlement contract should include the full unpaid balance on the account. This is important to prevent future misunderstandings and confusion. 

2. Look for the original creditor’s account number. Collection agencies generally assign their own account or reference number to any files assigned to them. Likewise, if a junk debt buyer purchased your debt, it will likely have a new number assigned to it.

Before mailing your settlement check, make sure that the exact original creditor’s account number appears in the agreement.

3. The debt settlement agreement should identify the authorized agent. When settling through a third party (collection agency), the contract must state the name of the agency and identify it as the collecting agent on behalf of your creditor.

4. Take note of the expiration date. Settlement offers generally expire after a specific date. The contract could even state the specific time of day by which the agreement expires. For example, the agreement might state something like the following: 

  • “…payment must be received by 9 a.m. on June 25. Failure to meet any of the terms above could void or null this agreement.” 

In such case, receiving the settlement check after the expiration date or time could void the settlement agreement. Your creditor could pursue the remaining balance from you. 

If you would like to mail the check but feel that you cannot meet the deadline, request another contract. Debt settlements involve a negotiating process. Inform your creditor or collection agency that you have the check and will put it in the mail as soon as you receive an agreement that meets your requirements.    

Do not feel that you have to pay online or by electronic withdrawal. If you accidentally fail to meet any of the terms in the contract, your creditor would have your banking information and could withdraw or attempt to withdraw the full amount, depending on the wording on the agreement. A cashier’s check or money order are your best options.

5. Look for the phrases “settlement in full” or “payment in full.” The debt settlement document must specifically state that the authorized agent will accept the settled amount as either “settlement in full” or “payment in full.” Otherwise, your creditor could come back and sue you for the remaining portion of the unpaid debt

Once the funds clear, you should receive a release letter. Save the letter along with a copy of the contract and the settlement check. Wait about 90 days before checking your credit report to make sure that your file reflects the correct status. 

Overall, a debt settlement can provide a certain level of piece of mind, as you do not have to worry about any more bills or collection calls pertaining to the settled debt. However, it is important to read the agreement thoroughly and carefully. Take note of all the terms. If you feel uncomfortable or you don’t feel that you can meet certain terms, don’t be afraid to request a new debt settlement document. 

Copyright © 2011 Ana Jackson. All Rights Reserved. Reproduction in whole or in part constitutes plagiarism, is illegal and strictly prohibited.


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