Settling Credit Card Debt

[AllyStreelman]

Will settling my credit card debt for less than the full amount owed negatively impact my credit score?

[bjl584]

If you are to that point, then your score has already taken a hit.
You probably aren't going to try to settle a debt if you haven't already defaulted on it.

[kork13]

Settling a debt that has gone to collections will put an end to the ongoing damage being done to your credit -- the longer it sits in collections (or even just being 30/60/90 days behind on payments), the worse it gets. At least with a settlement, you can start to move past it. If somebody has bad debts like that, I would always tell them to settle the debt rather than letting it sit, rot, and fester.

Keep in mind that in 99.999% of cases, credit card companies will never settle a credit card debt without sending it to collections. So if you're 60/90 days behind, they still won't settle ... they'll just sell off your debt to a collector & write it off from their own books. At that point, the CC company will have nothing to do with you, and will only point you to the collector. Good news: collectors buy bad debts for something like 5-15% of the face value, so you can (with patience & gnashing of teeth) generally get them to settle for 20-30% of face value. Bad news: They also tack oodles of inane collection fees that you need to also negotiate them off of. It's a pain in the butt.

[Bozzdivine]

Both Brian and kork13 have given some solid advice. Settling your debt for less than the full amount can impact your credit score negatively.

The fact is that the record of your debt being settled, rather than paid in full, will stay on your credit report for some time and may affect your ability to get credit in the future.

However, kork13's point about stopping the ongoing damage to your credit score is key. If the alternative is defaulting or letting the debt sit in collections, settling may be the lesser of two evils.

[srblanco7]

Settling a debt that has gone to collections will put an end to the ongoing damage being done to your credit -- the longer it sits in collections (or even just being 30/60/90 days behind on payments), the worse it gets. At least with a settlement, you can start to move past it. If somebody has bad debts like that, I would always tell them to settle the debt rather than letting it sit, rot, and fester.

Keep in mind that in 99.999% of cases, credit card companies will never settle a credit card debt without sending it to collections. So if you're 60/90 days behind, they still won't settle ... they'll just sell off your debt to a collector & write it off from their own books. At that point, the CC company will have nothing to do with you, and will only point you to the collector. Good news: collectors buy bad debts for something like 5-15% of the face value, so you can (with patience & gnashing of teeth) generally get them to settle for 20-30% of face value. Bad news: They also tack oodles of inane collection fees that you need to also negotiate them off of. It's a pain in the butt.

Yes to all of this. Also, if the settlement is larger, I believe the debt buyer may also file a 1099-C (cancellation of debt) which is treated as your income and you have to pay taxes on the cancelled amount.

https://www.irs.gov/taxtopics/tc431

[Annieadox]

Yep, I've settled credit card debt for less before, and it did negatively impact my credit score.
Thought it was a smart move at the time, but it stayed on my report for years. If I could do it over, I'd probably try to negotiate a different plan with the lender. It's not always as great a solution as it seems, so make sure to weigh all options!