Ways to Settle Credit Card Debt

Consumers have a number of ways to settle credit card debt. During economic downturns, banks tend to be open to accepting settlements at a significant discount to balances owed. However, such settlements come with long-term consequences, so carefully consider all options before entering into any agreement. Credit scores will negatively reflect these arrangements for seven years and you may owe taxes on the amount of forgiven debt. Always consult a tax adviser.

Negotiate Directly With Banks

Banks will generally consider settlement discussions after you are delinquent for at least two months. The longer an account is delinquent, the more banks are willing to entertain increasingly lower settlement offers. If, however, you are behind on only one or two accounts, banks are much less inclined to settle, as they look at a consumer's overall credit profile when making such decisions.

Work Through a Credit Counseling Service

You have many credit-counseling service options. Look for nonprofit agencies, which provide resources, comprehensive Frequently Asked Questions, online enrollment, free telephone consultation and debt management plans. After you fill out a questionnaire, the counseling service will make specific suggestions and negotiate directly with banks to settle debt at amounts significantly less than the principal due. These plans typically allow you to pay on a monthly basis by sending one check to the agency, which then distributes predetermined amounts to creditors.

Borrow From Alternate Sources

Homeowners with equity can borrow money at low interest to settle credit card debt at a significant savings from the total amount due. Other options include borrowing money from family or friends to settle debt and make a fresh start. Either of these options should be accompanied by specific and realistic repayment plans to avoid foreclosure or risk to relationships. Given that credit scores will be impaired for years when making settlements with banks, any such borrowing should ideally be done while scores remain positive.