How to Do Settlements on Credit Card Accounts

Before you have a chance to establish a solid credit history, you or your significant other might find yourselves behind on paying a credit card bill that accumulated during college or when you were less responsible with your spending habits. If you can raise the money to pay off a portion of your balance, but you won't have enough to cover the entire amount, you might be able to negotiate a settlement with your creditors. You must be past due on your credit card payments for a company to be motivated to settle your account.

Call your credit card company and ask to speak with a representative who is authorized to negotiate settlements. You might be transferred to another department or a management-level employee

Discuss why you are having trouble paying your credit card bill. You must have a compelling reason other than having a high balance. If you have recently experienced a job loss, debilitating illness and medical bills or some other reason, be ready to provide documentation to prove your extenuating circumstances.

Ask to speak with the supervisor of the original negotiator if the representative will not entertain an offer to settle. Higher-level employees have more authority to make these types of decisions, especially if they doubt your ability to continue regular payments on your existing balance.

Wait for the creditor to offer you a settlement -- if the company has contacted you repeatedly for being overdue on your payments. Credit card companies would rather receive a portion of what you owe instead of nothing at all or a very small amount by selling your account to a collection agency. You might have to wait many months before negotiations start. If you are eager to settle, you need to take the first step.

Offer to make a reduced payment to pay off your account. Be specific about the amount of money you are able to pay in one lump sum or over a few months. Your credit card company may agree to a reduction of up to 50 percent of your outstanding balance.

Ask for the settlement amount in writing when you come to an agreement with your credit card company. Once you verbally accept the payoff, tell the creditor to confirm the terms in a letter before you send your final payment.

Tips

  • You might have to deal with a collection agent if your account is more than six months past due. Your creditor might not attempt to collect from you for much longer than 180 days and may sell the loan to a collection agency.
  • If you hire a debt-settlement company to negotiate for you, ensure it has a good reputation and does not charge you a fee before the service is performed.

Warnings

  • You may be required to pay federal and state income taxes on the amount forgiven by the credit card company. Talk to your accountant before you accept a settlement.
  • You credit report may incur a negative entry, and your credit score can drop as a result of a credit card account settlement. The impact to your credit history depends on many factors, such as how many delinquent accounts you have and your current standing.
 

About the Author

Carol Deeb has been an editor and writer since 1988. Her work has appeared in magazines, newspapers and online publications, as well as a book on education. Deeb is a real-estate investor and business owner with professional experience in human resources. She holds a Bachelor of Arts in English from San Diego State University.