Pay off your Credit Card with a Lump Sum

Of course, I can hear you saying — anyone can pay-off their credit card debts with a lump sum. All you do is to write a cheque for the amount owed and your credit card is cleared.

However, if you have persistently had credit card problems you can use this method to potentially save thousands off your bill.

The truth is that credit card companies will sometimes accept drastically smaller lump sums as a full and final settlement of the account. They do this if they feel that, in future, it is likely that they many not get any money at all. As a result they are willing to accept a lump sum now as this is better than getting little or nothing in the future. This is due to the fact that credit card companies are pretty near the bottom of the pile when it comes to prioritizing debt settlements).

If you have had problems with a credit card and you have missed a few payments or your financial outlook seems suspect then your credit card account will probably have been 'flagged'. If you have this kind of account and you can raise the money then it may well be of benefit for you to offer a full and final settlement of the account for between 50% and 60% of the balance owing.

The response of the credit card company will depend on several factors: their view of the account, their own policies and forecasts and the financial history of the client. Dependent on these factors the card company will either accept or reject the offer. Though a rejection will leave the client no worse than they currently are. More often than not the card companies will come back with a counter-offer that the client can then accept.

However, if you have a clean account and you have been making all your payments as normal then there is no reason for the card company to make or accept any kind of offer — this applies only to problem accounts.

Making a Full and Final Settlement

If you contact the credit card company by phone and they agree to a Full and Final Settlement; even if they ask you to pay immediately it is absolutely essential that the verbal agreement over the phone is followed up in writing. Never send any money or do anything until you have received the written notice of the agreement.

When you send your cheque you need to add a pro-forma (covering letter) that states something like:

cashing the enclosed cheque, numbered xxxxx represents implicit acceptance of the full and final settlement of account numbered xxxxxx as stated in letter ref:xxxxx and CreditCardCompany will remove all adverse credit information from my credit file as part of the conditions of this full and final payment.

Ensure that staple the cheque to the letter. Retain a copy for your records then send the payment and letter by recorded delivery.

Protecting your Credit Rating

Whenever you agree to the terms of a 'Full and Final Payment' you should specify that the agreement is subject to the card company removing any adverse credit information from your credit files. (They may not agree: but, as always, it's worth a try.)

Again, you need this agreement in writing something of the form "we accept xxxxx as full and final setlement of your account xxxx with CreditCardCompany and once the payment has cleared we will remove all adverse information from your credit files". It can take up to 3 months for such information to be removed. Ensure that you check at the end of this time that such information actually has been removed from your credit files.