Credit Card Settlement: Process, Impact on CIBIL Score & Alternatives Explained

Credit card settlement in India has emerged as a popular solution for individuals overwhelmed by mounting debt. With over 1.9K monthly searches in India alone, the term "credit card settlement" reflects a growing concern about managing credit responsibly. According to the Reserve Bank of India (RBI), the total credit card outstanding in India crossed Rs. 2 lakh crore in 2023, showcasing the increasing reliance on plastic money. However, this convenience often comes at a cost, leading many into a debt trap.

This blog aims to demystify the credit card settlement process, highlight its impact on your CIBIL score, and introduce viable alternatives. Whether you are looking to understand the process, evaluate the consequences, or improve your financial health post-settlement, we’ve got you covered.

What is Credit Card Settlement?

Credit card settlement is a financial agreement between the borrower and the bank, where the borrower is allowed to pay a reduced amount to close the outstanding dues. This typically happens when the borrower is unable to repay the full amount due to financial hardship. The bank agrees to "settle" the debt for a partial payment, marking the account as "settled" rather than "closed."

Unlike a full payment, a settlement is considered a negative mark on your credit report and can significantly affect your creditworthiness. Still, it’s an option many consider when faced with bankruptcy or legal action.

Types of Credit Card Settlement

• Lump-Sum Settlement – One-time reduced payment.

• EMI-based Settlement – Repayment over agreed EMIs with reduced interest.

• Debt Consolidation – Combine multiple debts into one lower-interest loan.

What is the Credit Card Debt Settlement Process?

The credit card settlement process usually follows these steps:

• Default Occurs: Payments are missed consecutively for over 90 days.

• Bank Initiates Contact: The bank or recovery agents will start contacting you.

• Negotiation: You or a settlement advisor negotiates with the bank.

• Agreement: A formal settlement offer is made.

• Payment: You pay the agreed amount.

• NOC & CIBIL Update: The bank issues a No Objection Certificate (NOC) and updates the CIBIL report as "settled."

According to TransUnion CIBIL, settled accounts have 30-50% lower credit scores than closed ones.

Does Credit Card Settlement Affect CIBIL Score?

Yes, it does. A credit card loan settlement is recorded as "settled" in your CIBIL report, which is a red flag for future lenders. It indicates that the borrower did not pay the full amount, lowering trust in future repayments.

Key Impacts on CIBIL Score:

• A drop of 75–125 points post-settlement.

• Negative status stays for 7 years.

• Lower chances of getting future loans or credit cards.

How to Improve CIBIL Score After Credit Card Settlement

If you’ve gone through a credit card settlement, don’t lose hope. There are proactive ways to rebuild your credit health:

• Request a NOC: Always get a written No Objection Certificate.

• Monitor Credit Reports: Regularly check for inaccuracies.

• Pay Remaining Dues (If Any): Sometimes, paying a residual amount may lead the bank to change the status to "closed."

• Use Secured Credit Cards: These cards help rebuild trust.

• Maintain Low Credit Utilization: Keep usage below 30% of your limit.

• Timely Payments: Never miss a due date again.

As per the reports, Individuals who maintain 12 months of timely payments post-settlement saw an average increase of 80 points in their CIBIL scores.

Alternatives to Credit Card Debt Settlement

Before opting for credit card settlement, explore these better alternatives:

• Balance Transfer: Shift high-interest debt to a lower-interest card.

• Personal Loan for Debt Clearance: Take a loan to clear credit card debt at a lower rate.

• Debt Consolidation Loan: Merge multiple loans into one with a fixed EMI.

• EMI Conversion: Request your bank to convert large dues into EMIs.

• Debt Management Plan (DMP): Set up a structured plan through a loan repayment company.

As per the reports, using personal loans for consolidation results in 30% lower total interest compared to settlements.

How AMA Legal Solutions Helps with Credit Card Settlement

At AMA Legal Solutions, we specialize in helping individuals navigate the credit card settlement landscape in India. With years of experience and a 4.9-star rating, we negotiate directly with banks to ensure fair settlements and even explore ways to upgrade the status to "closed."

Our Key Services:

• Negotiation with credit card companies and banks.

• CIBIL score improvement strategy.

• Legal protection from harassment.

• Post-settlement financial planning.

To Sum it Up

Credit card settlement can be a lifeline for those drowning in debt, but it should be a last resort. The process has long-term implications for your credit health. Exploring alternatives like balance transfers or personal loans can often be more beneficial. However, if settlement is inevitable, ensure you are guided by experts like AMA Legal Solutions to navigate it with minimal damage.

In 2024, over 30% of settlement cases handled professionally resulted in better outcomes and status updates within a year.

For more personalized advice, contact us at AMA Legal Solutions or follow us on Instagram and YouTube.