An excessive amount of credit card debt may lead you to ask for a settlement. When you settle your debts, you are making an agreement with the credit card company to pay an amount less than the full balance. Credit card companies do not readily disclose the fact that settlements are available. A credit card company will not let you settle your account unless you are at least 90 days past due. You can usually settle any where from 50 to 70 percent of your outstanding balance.
Decide how much you can pay. If you have a large lump sum of cash, such as a tax refund or bonus, you may want to settle your credit card debt. When you call the credit card company have a target figure in mind to offer as a settlement.
Call the credit card company and explain your circumstances. Credit card companies will be more willing to offer extend a settlement if you are experiencing financial difficulty or some type of hardship. Provide them with all of the details. You may want to settle a credit card to help reduce your debt load.
Offer the settlement to the credit card company. You can start with a settlement figure of 30 to 35 percent of your outstanding balance. Tell the credit card company this is the amount you are prepared to pay as a settlement for your credit card debt. They may make a counter offer of 45 to 50 percent of the balance. A credit card company is more likely to accept your offer if they think you will file a petition for bankruptcy, which means they will not receive anything.
Ask for the offer in writing. Once you have successfully negotiated a settlement offer, make sure the credit card company provides you with the details in writing. In the past, some credit card companies have offered settlements and then forwarded the forgiven balance to a collection agency, according to the website Investopedia.
As a rule of thumb, settlements in the amount of 50 to 70 percent of the balance are acceptable. Some credit card companies will settle for 20 to 70 percent of the balance.
In some cases the forgiven debt may have to be reported as taxable income if the amount is $600 or greater. There are some exceptions. Check with your tax accountant or tax professional.
A settlement will damage your credit score.
- Credit Cards: FICO Reveals How Common Credit Mistakes Affect Scores
- Federal Deposit Insurance Corporation. “Credit Card Activities Manual.” Accessed June 30, 2020.
- Consumer Financial Protection Bureau. “Credit Card Debt During Coronavirus: Relief Options and Tips.” Accessed June 30, 2020.
- Experian. “Can You Negotiate a Settlement for Credit Card Debt?” Accessed June 30, 2020.
- Missouri Department of Insurance. “Auto Credit Scoring.” Accessed June 30, 2020.
- Federal Trade Commission. “Debt Relief or Bankruptcy?” Accessed June 30, 2020.
- IRS. “Instructions for Forms 1099-A and 1099-C,” Page 4. Accessed June 30, 2020.
- As a rule of thumb, settlements in the amount of 50 to 70 percent of the balance are acceptable. Some credit card companies will settle for 20 to 70 percent of the balance.
- In some cases the forgiven debt may have to be reported as taxable income if the amount is $600 or greater. There are some exceptions. Check with your tax accountant or tax professional.
- A settlement will damage your credit score.
Melvin J. Richardson has been a freelance writer for two years with Associated Content, and writes about topics such as banking, credit and collections, goal setting, financial services, management, health and fitness. Richardson has worked for several banks and financial institutions and gained invaluable experience and knowledge. Richardson holds a Master of Business Administration in Executive Management from Ashland University in Ashland Ohio.