The Best Payment Method to Use to Settle a Credit Card Debt

A credit card lender may offer you the opportunity to "settle" your credit card bill. Settle means you pay less than you owe on the debt. This can help you take care of the bill while keeping more of your money in your own pocket. The best payment method to use will depend upon your personal preferences -- but no matter which method you choose, when you make the payment to the credit card lender, do so in a manner that protects your bank account information.

A credit card issuer may offer to settle the debt in-house. In this case, paying with your checking account or debit card may be a convenient way to make a payment. If the debt has been placed with a collection agency, you may have to make your payment to the collector instead. Bill collectors will sometimes ask you to permit them to "draft," or withdraw, the money from your account, or ask you to give them a post-dated check. This type of transaction could potentially have unwanted consequences for you. If the collector erroneously withdraws more than you agreed or drafts your account on the wrong date, it could lead to an overdraft. Depending upon your state, bouncing checks can lead to civil or even criminal penalties.

If you pay using your checking account or debit card and a mistake occurs, you may be able to resolve the issue with your bank eventually. In the interim, it could lead to inability to make payments on the other bills that you pay from that account. Also, giving someone permission to remove money from your account can be risky. Once a creditor or collection agency has your account information, it may be able to withdraw funds from the account for that bill and other debts that you owe to that creditor or bill collector.

An alternative to giving out your checking account information is to make the payment from your bank to the credit card issuer or collection agency using online bill pay. Many banks offer this service for free to their customers. Generally, you will sign into your bank account online and select the merchant or business that you wish to pay. You will designate the payment dollar amount and the date of the payment. The bank will send the payment to the credit card lender or collection agency. This way, no one gains access to your account number and information. Check with your bank to see if it offers online bill pay.

If your bank doesn't offer online bill payment, or if you don't have a checking account, or simply wish not to divulge your bank information, you may be able to make your settlement payment using a prepaid debit card. This is a reloadable debit card that you add money to as needed. They're sold at many retailers and stores. Your spending is limited to the amount of money you have on the card. Prepaid debit cards are not tied to your bank account, so you do not run the risk of compromising your bank account information. Check with your creditor or collection agency to see if it accepts prepaid debit cards as a payment option.

You can generally use a cashier's check or money order to pay your settlement debt. You can purchase a cashier's check or money order at most banks for a small fee. Some may offer them for free to bank customers. You can also buy a money order at the post office or even at some convenience stores. You decide the dollar amount of the cashier's check or money order, purchase it, and then fill out the payee information. The credit card issuer or collector can then deposit the cashier's check or money order into its account. Save the receipt from the purchase for your records.