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In part one of this two-part post, we examined APRs of current and delinquent credit card accounts under a few conditions. From good standing to charge-off and collection situations, creditors may treat account APRs differently, but a few things can be applied across the board. Here is a more in-depth look at APRs under debt settlement programs.
The following assumes that you haven’t been paying your unsecured creditors and that a debt settlement program is a viable option. It also assumes that your delinquency isn’t recent and that a debt management plan isn’t a viable option. If you enter into a debt settlement plan, your APR is likely high.
What a settlement company looks to do when you enter into a debt settlement program is to try and minimize the impact of that APR by settling with the creditor, ideally based on the amount of debt, including arrearage of interest charges, at the time you entered the program. Some creditors will not allow this and may focus on whatever your current balance is at the time of settlement, including ongoing charges. Because of these differences, a debt settlement program involves a creditor-by-creditor analysis as to how each creditor’s APR would impact you when you go into a debt settlement plan.
What the settlement plan can do, then, is lead you to an agreement with your creditor about what percentage of your balance you must pay. That percentage varies from creditor to creditor, but a settlement will stop the bleeding, so to speak.
Your APR can mean a lot of different things, but all in all, the rate you’re charged on your debt depends on your creditor. When it comes to delinquency and trying to control your debt, a debt settlement program can be a good way to begin turning things around. While a settlement program will not lower your APR, it can help put you back on a path to eliminating that debt and making things more manageable. In effect, once a debt is settled, there is no outstanding loan on which to charge an APR.
Very interesting. I think few people appreciate how all of these things are connected. Its really important to spend the time learning about them, since they can have a dramatic impact on your finances.
Debt settlement programs are great, but only for a relatively small amount of people. The program causes lasting damage to credit scores, which in turn will cause you to pay higher APRs in the future as well. It should only be used as a last resource before filing bankruptcy.
Bob, this is a very good explanation, especially for those who doesn’t have enough knowledge about how the debt settlement program can affect the APR on their credit card. The truth is I’m not a fan of a credit card, I use cash in every item that I purchased, but reading an informative topics like this one really helps me a lot.
Too bad that someone has to pay a higher APR when they buy a bunch of stuff and don’t pay. It’s better for those people to get a second job and pay of the debt. And I bet that they do not have to claim the debt forgiven as income.