Settling Your Debt with Capital One

Debt can feel overwhelming. Many of us have found ourselves struggling to keep up with credit card bills and other debts at some point. If you owe money to Capital One and are having trouble making payments, you may be considering debt settlement as an option.This article from Delancey Street Financial will walk you through what debt settlement is, how it works with Capital One specifically, key steps in the process, and some pros and cons to weigh. We’ll also look at a few examples to illustrate the debt settlement process.Our goal is to empower you with information so you can make the most informed decision for your financial situation.

What is Debt Settlement?

Debt settlement involves negotiating with a creditor like Capital One to pay a lump-sum that is less than the total amount owed. This is also called “settling” or “resolving” the debt.When you settle a debt, the creditor agrees to accept the lump-sum as payment in full and forgive the remaining balance. This can be a one-time payment or spread out over several months. The key is that the creditor accepts less than the total owed as full repayment. Settling debt directly with the creditor avoids fees charged by third-party debt settlement companies. We’ll talk more about the risks of those companies later.

How Does Debt Settlement Work with Capital One?

Capital One is generally open to settling debts, but approaches each case individually. Here are some key steps if you want to settle debt with Capital One:

• Stop making payments: Capital One usually requires that you have not made any payments for 90-120 days before they will discuss settlement. This shows you are experiencing financial hardship.
• Receive a charge-off: Your account will be “charged-off” before a settlement can happen. This means Capital One writes it off as a loss but can still try to collect.
• Get a settlement offer: Capital One will assess your financial situation and make a settlement offer. Often it is 40-60% of the total owed.
• Make the lump-sum payment: Once you accept the offer, you’ll pay the agreed lump-sum to settle the debt. Capital One will then forgive the remaining balance.
• Account closure: Settling debt with Capital One results in permanent account closure. You cannot reopen the credit card.
• Credit reporting: The settlement will likely show on your credit report as “settled for less than full balance.”

Key Steps in the Debt Settlement Process

If you decide debt settlement is the right option for your Capital One debt, here are more details on the key steps:

1. Stop Making Payments

As mentioned, Capital One usually requires that you stop making payments for 90-120 days before they will discuss settlement options. This pause in payments shows you are experiencing financial hardship and unable to pay the full amount owed. It signals to Capital One that you are a candidate for settlement.

2. Receive a Charge-Off

With payments paused, your account will eventually be “charged-off” by Capital One. This means the creditor writes your debt off as a loss or bad debt, but can still try to collect. Charge-off is a necessary step before Capital One will make a settlement offer.

3. Wait for Capital One to Contact You

Once your account is charged-off, Capital One will likely reach out to see if you are interested in settling the debt. This often happens via letter.You can also be proactive and call their settlement department yourself to get the conversation started.

4. Receive and Negotiate the Settlement Offer

Capital One will assess your financial situation and ability to pay. Based on their analysis, they will make a lump-sum settlement offer. This is often 40-60% of the total amount owed. If the offer seems fair, you can accept it and move to paying the settlement amount. If not, politely counteroffer with an amount you can afford. Negotiating could help reduce the settlement amount further.

5. Make the Lump-Sum Payment

Once you accept Capital One’s offer, it’s time to make the lump-sum payment according to the agreed terms. This can be a one-time payment, or spread out over 6-12 months.Be sure to get the settlement offer and payment arrangement detailed in writing before sending any money.

6. Capital One Forgives Remaining Balance

After you make the final settlement payment, Capital One will forgive the remaining account balance. Be sure to keep records showing the debt has been resolved and settled.At this point, you are done! The debt is settled and resolved for less than the full amount owed.

Pros and Cons of Settling Debt with Capital One

Settling your Capital One debt has several potential benefits:

Pros

• Settle debt for less than you owe
• Avoid bankruptcy
• Lump-sum payment may be more affordable than monthly payments
• Permanently closes account and stops interest accrual
• Settling is better than defaulting

However, there are also some drawbacks and risks to consider:

Cons

• Account closure means no future access to Capital One credit cards or loans
• Upfront lump-sum payment can be difficult to save up
• Settled debt stays on your credit report for 7 years
• Balance forgiveness may be taxable income

As you weigh the pros and cons, make sure settling debt makes the most financial sense for your situation.

Beware of Debt Settlement Companies

While you can settle directly with Capital One yourself, you may also see ads for debt settlement companies that offer to negotiate settlements on your behalf, for a fee.The Consumer Financial Protection Bureau warns that using these debt settlement companies can be risky. 

Here are some red flags to watch out for:

• High fees – Up to 20-25% of your total debt amount
• Pressure to stop paying all your debts at once
• No guarantees they can settle your debt
• Risk of owing settlement fees even if they fail to settle debts
• Harm to your credit from lapsed payments during settlement process

If you need assistance negotiating debt settlements, consider a non-profit credit counseling agency instead. They can offer advice on managing debt for much lower fees compared to debt settlement companies.

Examples of Capital One Debt Settlement Offers

To make debt settlement less abstract, let’s look at a few examples of what Capital One settlement offers might look like for different debt amounts:

Example 1: $5,000 Credit Card Debt

• Total owed: $5,000
• Settlement offer: $2,000 (40% of total)
• Savings: $3,000 forgiven

Example 2: $15,000 Credit Card Debt

• Total owed: $15,000
• Settlement offer: $9,000 (60% of total)
• Savings: $6,000 forgiven

Example 3: $25,000 Credit Card Debt

• Total owed: $25,000
• Settlement offer: $12,500 (50% of total)
• Savings: $12,500 forgiven

As you can see, the settlement offer amounts can vary based on your total debt. But in each case, you save a significant amount through the debt settlement.

Bottom Line

We hope this overview has helped you better understand what debt settlement is and how the process works with Capital One. Settling your account for less than you owe can be a relief, but make sure you weigh the pros and cons carefully first.The most important thing is picking the debt relief option that works best for your unique financial situation. We encourage you to seek help from a non-profit credit counseling agency if you need guidance or assistance.At Delancey Street Financial, our goal is to equip you with the knowledge to make informed decisions about managing debt. Please reach out if we can be a resource for you. Wishing you the very best on your journey to financial health and freedom from debt!