The rising unemployment rate and the economic slow down is hurting many American consumers. Consumers are now finding their budgets stretched thinly just to cover their basic expenses. Many are finding out that their monthly take home pay is just enough to cover their daily expenses. As a result, they have had to prioritise their spending and one of the first budgetary expenses to go is credit card debt payments resulting in the rise of defaults and charge-offs for credit card companies.

The rise in defaults and charge-offs are also hurting credit card companies considerably. In May this year credit card defaults reached 10%. This is the highest it has been for some time now. With 10% of their uncollected debts considered as unrecoverable, credit card companies are now desperately seeking for ways to recover at least some of these debts.

Credit card companies have the option of selling these debts to collection companies. However, this will mean that they will be seeing pennies for every dollar. A more attractive option for credit card companies is to offer a debt settlement arrangement to their debtors.

In a credit card debt settlement arrangement, the credit card companies get a percentage of the original debt from the debtor in exchange for which the credit card company will consider the debt paid. Although the credit company does not get the original amount back, at least they still get a percentage of the original debt. This also has some appeal for credit card holders burdened with debt, mainly because this will allow them to settle their debts for a value much lower than the original debt.

Some credit card companies have taken it to themselves to call up their debtors to offer them a debt settlement program. Credit card holders carrying debts on their credit cards can also call up their credit companies themselves and ask for a debt settlement arrangement. Not everyone is eligible for a debt settlement arrangement. However, considering the current economic situation, the chances that a credit card holder can secure a debt settlement arrangement for herself or himself is quite good.

Although a credit card debt settlement arrangement might seem like a great idea for getting rid of credit card debt for credit card holders, they need to be aware that there is an unpleasant side effect. If a card holder goes for a debt settlement arrangement, his or her credit score will receive a large black mark for it. Considering that this black mark stays with them for seven years, credit card holders should think twice before going for a debt settlement arrangement.