How Do You Settle Credit Card Debt?


Quick Answer

Consumers can try to settle a credit card debt by negotiating with the credit card or collections company to pay off the debt at an amount less than what is owed, according to Nolo. Credit card companies might accept a lower payment amount from consumers who have missed many payments.

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Full Answer

In most cases, if the credit card company agrees to settle the debt at a lower amount, the consumer must pay the settlement amount in a single lump-sum payment, states Nolo. Once the debt is settled, the account is closed and the credit card company reports a zero balance to the credit reporting agencies, explains Experian. However, debt settlement does not erase delinquent payments or collection items on a credit report.

Credit card companies might agree to settle the debt to avoid collections fees and costs associated with a law suit, according to Nolo. However, if the company forgives more than $600, the amount forgiven is reported to the IRS as taxable income for the consumer.

Consumers can also hire a debt settlement company to negotiate with credit card companies and debt collectors on their behalf, according to the Consumer Financial Protection Bureau. However, these companies generally charge high fees and advise consumers to stop making debt payments which can cause further damage to their credit score.

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