Can I Still Use My Credit Card After Debt Settlement?

Going through a debt relief program could end your financial stress, get rid of your debts, and let you move on with your financial life. 

Once you reach your debt settlement goals, you’ll be in a better position (hopefully!) to afford the bills you’re still paying, and even set some money aside each month. This could be the perfect time to start rebuilding your financial toolkit. 

Most of us need to have a credit card. Life is certainly possible with debit cards and cash, but unless you have an unhealthy relationship with credit cards, there’s no reason to avoid them just because you happened to have gone through hard financial times in the past. 

Let’s look at how debt settlement affects your credit cards—including your existing credit cards and your ability to open new credit card accounts in the future. 

Impact of Debt Settlement on Existing Credit Cards 

If you’re thinking about a debt settlement program, it’s probably because you’ve already fallen behind on credit card payments. You might have delinquent or charged-off credit card accounts. If you’re a good fit for debt settlement, it’s possible creditors have already closed your credit card accounts.

If you have open credit card accounts, you might wonder if you can keep them open. For example, let’s say you have two overdue credit card accounts that you want to enroll in a debt settlement program and one credit card with a low balance. You’d like to keep that low-balance account open. 

Freedom Debt Relief doesn’t require you to close all your credit accounts as a condition of enrollment. If you still have access to credit, though, this could throw a wrench in your debt settlement program. 

A few reasons why you might want to close all credit cards before you do a debt settlement program: 

• Any credit access looks bad. Your creditors can still access your credit report. If creditors notice that you’re still using and paying another credit card or that you have available credit, they might be less likely to negotiate. Creditors might say, “Why should we settle for less money than you owe us, if you still have enough money to pay this other credit card?” 

• Credit card payments could slow down your program. Debt settlement programs require that you have money to offer your creditors. Most people build up funds by setting aside money each month. You might want to close all your credit cards, even the ones you’re current on payments for, to focus your extra cash on building up your savings. 

• Open credit cards could lead to more debt. If you’re going through financial struggles, sometimes it’s easier to just close all your credit card accounts. This way, you remove the option to build up more credit card debt. 

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Can You Use Credit Cards During Debt Settlement? 

Most debt settlement programs will ask you to stop using your credit cards, if you haven’t already. That’s because using credit cards during debt settlement could be bad for your negotiations. If you want to negotiate debt settlements, your creditors won’t want to see that you still have available credit and are making payments to other credit card accounts. 

It’s also important to stop taking on more credit card debt. Debt settlement is a chance to get rid of credit card debt. So it makes sense to stop using your credit cards altogether.

Instead of credit cards during debt settlement, use: 

• Debit card. You can use your debit card to make convenient payments in the same way as a credit card—as long as the money is in your checking account. With a debit card, you’re not borrowing money. Debit cards allow you to spend only what you have in the bank. 

• Cash. If you want to stop using credit cards during a debt settlement program, you might want to pay cash for as many purchases as possible.  

Some people want to continue being able to use credit cards during a debt settlement program in case of an emergency. When you go through a debt settlement program like Freedom Debt Relief, your Debt Consultant will help you set up a monthly plan to set aside money to offer your creditors. One desired outcome of clearing your debts is that it frees up money in your budget for other expenses, like emergency savings.  

Remember, the debt settlement process doesn’t last forever. After you complete a debt settlement program, you should be able to use credit again almost immediately.

Using Credit Cards After Completing Debt Settlement

While going through a debt settlement program, your credit score is likely to go down. That’s because most people in a debt settlement program stop making payments to their creditors, which leads to negative items on your credit report. After debt settlement, you might have fewer credit card options to choose from.  

A solid option for credit cards after debt settlement is a secured credit card. This type of card can give you a second chance at using credit, and you can often qualify for one soon after debt settlement. 

Here’s how a secured credit card works: 

• You put down a cash deposit (typically $500 or less) 

• Your credit limit is often set at the amount of your deposit

• After a period of on-time payments, you can graduate to an unsecured credit card. 

Secured cards are typically easy to get, because there's virtually no financial risk to the lender. If you don’t pay your bill, they keep your deposit. 

Some banks or credit card companies might not offer you credit after they accept a debt settlement offer from you. You might need to look elsewhere or wait a few years before applying for credit from that particular issuer.

Here are a few strategies for successfully applying for new credit cards: 

• Learn to monitor your credit. Pay attention to your credit report. You are allowed a free credit report each week from all three credit bureaus or from AnnualCreditReport.com.  

• Make payments on time. Pay all of your bills on time, even the ones that aren’t credit cards. On-time payments have more influence on your credit score than any other factor.  

• Use secured credit cards. This type of second-chance credit card is often the best way to get a credit card fast after debt settlement. Choose one that reports your payments to the credit bureaus.

Debt settlement can give you a credit card reset. It’s possible to rebuild your financial life after debt settlement and eventually qualify for new credit cards and other loans. 

Building Credit After Debt Settlement with Credit Cards 

Freedom Debt Relief isn't a Credit Repair Organization and doesn't provide or offer services or advice to repair, modify, or improve your credit.

Here’s a simple step-by-step plan for how to build credit with credit cards after debt settlement: 

• Get a secured credit card. Secured credit cards are accessible, even to people with bad credit. You’ll need to put down a cash deposit.  

• Watch your credit utilization ratio. Don’t run up the balance on your credit card. It’s a good idea to keep the balance below 10% of the available limit. For example, if your secured credit card has a $500 limit, try not to owe more than $50. If you want to use the card more than that, it’s fine. Just pay the balance off before it’s reported to the credit bureaus. Your credit card issuer can tell you when they report.

• Pay your bill on time (or early). Paying on time is the most important part of your credit score. Establishing  a positive on-time payment history with your secured credit card could have a positive impact on your credit standing. You could also make multiple payments on your secured credit card each month. For example, let’s say your secured card has a $500 limit and you borrow $200. If you get paid every two weeks, make a $100 payment every payday.  

• Graduate to a regular credit card. Many credit card companies will automatically evaluate you after six to 12 months with a secured credit card. If you’ve paid on time, your credit card company might automatically move you to a traditional credit card—and you’ll get your cash deposit back. 

• Get added as an authorized user. Being an authorized user on someone else’s account could have a positive impact on your credit if the person who owns the account keeps the balance low and pays on time. You can be an authorized user even if you don’t use the card for purchases. 

There’s no specific measure for how debt settlement will affect your credit or how fast your credit can improve after debt settlement. It depends on how much you owe, how your debts get resolved, and how you manage your finances going forward. Many Freedom Debt Relief customers have seen their credit scores improve during and after debt settlement. 

Should You Use Credit Cards After Debt Settlement? 

Using credit cards after debt settlement has risks as well as benefits. It feels good to get back to using credit cards for convenient everyday payments, and some credit cards give you valuable rewards. But what if you get into credit card debt again? 

Here are a few questions to ask yourself to determine if you’re really ready to use credit cards after debt settlement: 

• Do you have a monthly budget? 

• Has your income increased since your debt settlement program? 

• Do you know your credit score, and do you understand what makes your credit score go up (or down)? 

• Have you signed up for credit monitoring to keep an eye on your credit report? 

• Are you up to date on your other bills and debt payments, such as medical debt? 

• Do you understand why you got into too much credit card debt the first time, and can you avoid that situation now?

• Do you recognize the emotional triggers that spur you to buy things you can’t afford, and can you manage those feelings?  

Not everyone is ready for credit cards after debt settlement. A few warning signs could mean credit cards after debt settlement aren’t a good fit. These include: 

• You’ve recently had a decrease in income—a job loss, pay cut, or loss of hours at work

• You don’t know your credit score 

• You haven’t looked at your credit report 

• You’re afraid to track your spending 

• You don’t look at your bank account balance or bank statements

• You don’t have a budget  

• You don’t know the difference between debt snowball and debt avalanche

• You don’t know your monthly income and expenses 

If you’re not ready for credit cards after debt settlement, that’s okay. You can use alternative payment methods like debit cards, prepaid cards, checks, online bill pay, or cash. No matter how you pay for things, you can still learn to set some boundaries for credit card usage. You might want to start small with one secured credit card with a low cash deposit. Then after a few months, if you have a good experience with that card, you can move up to an unsecured credit card. 

How to Use Credit Cards Responsibly After Debt Settlement 

Moving on with your life after debt settlement is an exciting time. You might find it helpful to plan ahead for how you want to use credit cards responsibly after debt settlement. Here are a few practical tips: 

• Use budgeting apps or spending trackers. Keep track of how much you’re spending on your credit card—before you get your credit card bill each month. 

• Sign up for automatic payments to your credit card. Some credit card companies will let you sign up for autopay from your bank account, so your bill gets paid on time each month. Pay more than the minimums to keep ahead of your credit card balances. 

• Set spending limits and boundaries. Consider setting some specific guidelines around credit card use. For example, you could decide to only use your credit card for certain one-time purchases, like vacations or back-to-school clothes. If you use your credit card for too many everyday purchases like restaurant meals, nights out, and groceries, the balance can go up fast. 

• Use a credit monitoring service. There are several free or low-cost credit monitoring apps that let you keep an eye on your credit report. With these services, you can get notified of any changes and sometimes get free tips on how to build credit.  

• Watch your FICO Score. Many credit card and bank accounts will let you monitor your FICO Score for free. You can watch your score go up over time with careful management of your credit.  

Rebuilding credit isn’t just about credit cards. It’s also a way to strengthen your entire financial life and build a brighter future. Rebuilding your credit after debt settlement can put you on track for better terms on auto loans, home mortgages, and other financial products that improve your life. This is one of the biggest reasons why debt settlement is worth it—because it helps you get rid of debt faster and start saving money for other financial goals.