Negotiating Your Credit Card Debt

If you’re reading this, you’re probably feeling overwhelmed by credit card debt. Negotiation may sound like an easy way out, but it’s not as easy as it looks. Debt negotiation and settlement involves a lot of phone calls, talking to collection agents, managers, and you should also be prepared to pay a good portion of your debt. Before you begin a settlement program, you should learn about credit card debt forgiveness.

You should also expect your credit score to drop sharply. The first time you call your card issuer to make arrangements, they will probably freeze your account right then. If your card is at its limit, that won’t be much of an issue- but if you still have quite a bit of credit, your credit score will drop because your ratio of debt to credit will increase.

Here’s another thing to consider: Any debt that you settle is considered taxable income. If you manage to greatly lower your payments (by $600 or more, when your lender is required to file IRS form 1099-C) you will be taxed on the difference. This doesn’t apply to any fees or penalties that got waived, just the principal.

Before you make any payment arrangement, find out whether or how your lender will report your repayments to the credit bureaus. A debt settlement can be just as detrimental to your credit score as a default, and if the lender reports a partial payment, your score will suffer also. As part of the contract, ensure that the lender will report the payments as in full and on time. This is one of the main drawbacks to debt settlement, because the consumer really has little control over how the lender reports to the credit bureaus.

So, what can you do to lower your credit card debt? You should definitely be honest about your finances, and you also need a genuine desire to repay the debt. It can’t hurt to ask the lender to forgive part of the debt- after all, getting part of their money back is better than nothing! If nothing else, ask for a lower interest rate so that more of your monthly payment is applied to the principal. Consider bankruptcy only as a last resort. Perhaps most importantly, don’t pay anything until you have an agreement in writing.

To learn about your state credit card laws, visit the experts at creditcarddebt.org today!