Credit Card Debt Settlement Strategy

Credit card accounts can be paid off for less than the full balance through credit card debt settlement. Savings are often significant, ranging from 20 to 70 percent according to SmartMoney. The process is sometimes intimidating for people with little negotiating experience, but becomes easier over time. Mapping out a sound strategy is important because of tax implications and other reasons.

Timeline

Credit card debt is available only on delinquent accounts. Card companies will not settle accounts that are being paid as agreed. Individual lenders set standards for settlement offers, with negotiations generally available once the account is three months past due.

For-Profit Companies

The Federal Trade Commission recommends self-directed debt settlement although for-profit debt settlement firms will handle negotiations for a fee. Some for-profit firms have been accused of shady business practices by federal and state authorities. Debt settlement starts by calling the card company to request a settlement. Begin calling once the the account is three months behind. Tell the customer service representative that you can no longer pay as agreed and want to settle.

Collections Department

The representative may transfer you to an in-house collections team specializing in settlements. Avoid discussing your income, employment and assets -- information that could be helpful to the debt collector if you default on the account and the card company considers suing you to collect. Keep the conversation focused on settlement while emphasizing that you cannot continue making payments as agreed.

Terms

The representative will review your account, and may inform you that a settlement is not currently available. Politely end the conversation and call back every two or three weeks. MSN Money reports that card companies usually close accounts and list them as charged off once they are six months past due. Settlement offers are usually available just before charge-off and sometimes sooner. Make a lowball offer once negotiations begin. Start at 20 percent and increase your offer by increments of five percent until you have a deal that you can afford. Get terms of any agreement in writing.

Tax Problems

Consult your tax adviser on possible tax implications. The Internal Revenue Service may treat savings gained through settlement as income. For example, settling for $2,000 on a $10,000 credit card debt could result in the IRS increasing your gross income by $8,000. The card company will send you a tax form to include with your return. Some people with financial problems can petition the IRS for an exemption.