If you've found that you can't pay the full amount owed on your credit card debt, negotiating and settling the credit card debt for less than what is owed is sometimes an option. However, this may negatively affect your credit. A low credit score can mean missed opportunities in terms of obtaining future loans.
How the Account Can Be Reported
Ensure that your original creditor reports “Paid as agreed.” If the creditor reports “Settled,” “Not paid as agreed” or any other delinquencies, your credit score will be lowered. Closing the account may be possible and beneficial. However, having too few open, established accounts can lower your credit score. If you have an account with a collection agency, you’ll want the collection account deleted.
When Paying Won't Help Your Credit
A debt can only legally be reported for seven years. After that, it no longer appears on your credit report or figures into your credit score. Settling, or in some cases even inquiring about, an old debt may restart the clock and make the debt appear newer and negatively affect your score. You also should be aware of the statute of limitations for your state, which is how long a creditor has to take you to court and obtain a judgment.
Negotiating a Settlement
Get everything in writing. Without a written and signed agreement, a collection agency might pass the balance between what you paid and what you owe on your account to another collection agency. The written agreement should also include how you want your payment recorded on your credit report, or if you expect the company to delete a collection account. Send payment by money order from somewhere other than your bank to protect your bank account information.
Choose Debt Consolidation Companies Carefully
Many people would prefer having someone else handle the negotiations for them. However, you should be aware that no company could guarantee a settlement with a creditor. You could end up losing money and having your credit score damaged. Read any agreement carefully before sending any money to a debt-consolidation company. You can contact a reputable credit counselor through an organization that offers face-to-face consultations and workshops that teach budgeting and credit management.