How to Get Out of Credit Card Debt Using Debt Settlement

Credit cards are a booming business. While credit cards offer convenience, they also have a dark side. The average household has $15,191 in credit card debt, which translates to Americans owing $854.2 billion to credit card companies.

Nearly 50 percent of those with credit cards carry a balance on at least one of their cards each month. Failing to pay off the balance each month leads to interest accruing on the balance due. This interest, which can easily exceed 20 percent, makes it more difficult to pay off the balance leading some consumers to spiral down into a hole they can’t climb out of. In these cases, debt settlement can be an option.

Debt settlement is generally defined as making a one-time offer of a substantial sum of money toward an outstanding credit card balance in exchange for the lender forgiving the remaining debt. For example, an individual has an outstanding balance of $10,000. They offer to pay $7,000 in a lump sum with the issuer forgiving the remaining $3,000. If the lender accepts the offer, the payment is made and the balance forgiven.

While sounding good in theory, there are some obstacles.

First, it can be difficult to even find the right department to talk to. 

Then the negotiations begin.

Like any negotiation, the credit card company is likely to reject the first offer on the table. Generally, the lender makes a counter offer. If the two parties reach an agreement, it’s put in writing and the debt is considered settled.

There can be significant tax consequences to debt settlement.

If the lender agrees to forgive more than $600, the amount is taxable and reported as income. Under the example cited above, the taxable amount would be $3,000. Such arrangements can also negatively affect credit scores as well.

If the lender refuses to settle by lump sum, they are generally willing to reduce interest rates and lower other fees. Credit cards are loaded with fees. By examining the statements carefully, it’s possible to find areas of negotiation. Many issuers are willing to lower interest rates, which in turn lower payments. Most have a staff dedicated to assist consumers in these matters.

Consumers need to take control of their spending and make budgetary adjustments to live within their means. Credit card companies want to be paid and will work with consumers to settle debt. 

It just takes some negotiation.

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