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Negotiating a Credit Card Debt Settlement

by Francine Huff

Negotiating a credit card debt settlement can help you pull out of a serious financial mess. Not all credit card companies agree to settle credit card debt, but if you manage to get such a deal, there are a few things you should know.

What Debt Settlement Can Do

A debt settlement occurs when your credit card company agrees to accept a portion of the debt you owe. Depending upon the circumstances, a credit card issuer may accept as little as 50% of the total balance owed. For example, if you owe $10,000 in credit card debt, you may be able to settle by paying only $5,000.

Go Solo or Find Help?

There is no guarantee that credit card companies are going to agree to settle your debt, but it doesn't hurt to ask. There are many debt settlement firms out there that charge a fee to help negotiate deals, but you can probably do it yourself. Keep in mind that negotiating a debt settlement may require you to make several phone calls over several weeks before getting a deal.

What type of personality do you have? If you are willing to be patient and take the time to track down the right individual to negotiate a settlement with, then a DIY debt settlement may work. But if you are impatient, timid about negotiating, or not very organized, you might benefit from using a debt settlement firm. Just keep in mind that negotiating your own debt settlement may save you hundreds or thousands of dollars in fees.

Tax Implications

Anytime you settle credit card debt, there may be tax consequences. The Internal Revenue Service (IRS) requires you to pay taxes on the amount of any forgiven debt. The amount of that forgiven debt is considered income and gets reported to the IRS on Form 1099. Another negative consequence of debt settlement is that your credit score drops.

What Credit Card Debt Settlement Can't Do

Although settling debt can help clear some of your bills, it won't change any bad habits that may be contributing to your financial problems. Getting more educated about how to manage money wisely can be the key to long-term improvement. If you're not sure where to start, find a qualified nonprofit credit counselor who can work with you to pay off credit card debt and set up a better spending and saving plan.


Published 03/18/10 (Modified 07/09/14)

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