Can You Negotiate Credit Card Debt Without Affecting Your Credit Score?

Even if you pay off the settlement in one lump sum, don't expect your credit card provider to simply report the account as “paid” to the credit bureaus. Your credit card company will notify the credit bureaus that you settled your account for less than the full balance. This has a considerably negative effect on your credit scores because it indicates you lacked the necessary debt management skills to pay creditors in full. That negative mark will stay on your credit history for seven years.

If debt settlement weren't bad enough for your credit, consider this: your credit card provider won't negotiate your balance until your payments are already late. If you're paying on time, the credit card company has no reason to believe you won't continue doing so. This means you'll have to stop making credit card payments to get the settlement you want. Missed payments are terrible for your credit scores. A single missed payment will cost you roughly 60 to 100 points -- and you'll need to miss several for debt settlement to be an option.

The portion of your debt that you did not pay is a tax write-off for your creditor. Unfortunately, a tax write-off for the credit card company translates to a tax debt for you. Federal law requires creditors to report any write-offs that exceed $600 to the Internal Revenue Service. You'll get a MISC 1099 form for the unpaid balance, which has to be counted as income on your taxes.

If you can't handle your growing credit card debt, ask your credit card provider for a lower interest rate. A lower interest rate means your debt accrues at a slow rate that should help you pay it off faster. According to a 2010 survey by Lending Club, a leading U.S. peer lending network, a surprising 68 percent of consumers who ask for a lower credit card rating get it.