Keeping Credit Available During the Debt Settlement Process

Most consumers attempting debt settlement include all of their unsecured consumer debt in the process. Their goal is to eliminate as much of their debt as possible and as quickly as possible. Once you begin the settlement process with a particular creditor, you will be unable to use the credit line associated with that account. A common question asked by many before they start the process is whether there is a way to keep one open and active credit card out of the settlement process?

Debt Settlement: What Are Your Goals?

Although your goal may be to eliminate all of your debt and you will probably avoid using credit for some time afterwards, living without a credit card can be difficult or very inconvenient. Purchasing products online or reserving a hotel room may be difficult to do without the availability of a credit card.

Consumer credit counseling requires that all unsecured debt be enrolled into a debt management program and bankruptcy does not allow you to treat one credit card company differently than another. Fortunately,debt settlement is the most flexible of the debt elimination strategies.

Debt Settlement: What Can You Leave Out?

You have the ability to leave a credit card out of the debt settlement process in many cases; however, there are no guarantees.

You will want to choose a credit card that is not associated with any of the creditors you will be negotiating a settlement with. If you have two credit cards with the same bank or institution, you cannot keep one and settle the other.

It's best to choose one with a low balance and small minimum monthly payment. You want the majority of your available monthly cash-flow to be going towards the settlement of your outstanding debts and not payments to the card you want to keep active.

If the credit card you are going to attempt to keep active has a universal default clause, you do run the risk of having the interest rate increased or the credit line reduced once you begin to miss payments on your other accounts. The universal default clause allows one credit card company to change the terms of your account with it based on your payment history on other accounts. There is a possibility that the credit card company will choose to close your account if they fear there is a chance you will not be able to repay it. If you make your payments on time and keep your balance low relative to the credit limit, most credit card companies will allow you to keep the account.

Keeping a credit card active through the credit card debt settlement process is certainly possible and will make life easier once you've completed your debt settlement efforts.

About the Author:
Chris Rocks is the Founder and Executive Director of the Credit Advisory Alliance (CAA). CAA is a nationwide membership-based organization that assists consumers recovering from a financial difficulty and those who need a significant increase in their credit score.

Chris began his financial services career as a Financial Advisor helping young families with risk management and asset accumulation strategies. It was during that time that Chris realized that many of these young families also needed someone to guide their choices with regards to debt management.

He made the transition into the mortgage industry where he first worked as a loan originator and later the Vice President of a small mortgage company. As Chris came across clients who had suffered through financial challenges and saw the difficulty they had in re-entering our credit driven economy, he discovered there was a real opportunity to leverage his unique background and help others.