Credit card debt can follow you for years unless it's paid or settled. If you're not in the position to pay off your credit card debt in full, you may be able to settle that credit card for less than you owe. Debt settlement firms charge fees for their services so it's wise to understand how to settle the credit card debt yourself for free.
Timing
According to the Federal Trade Commission, if you're having trouble paying your debt, you should contact the creditor directly and make it aware of your financial situation. According to Bankrate, creditors are more apt to consider a settlement offer after your account has been delinquent for awhile and is about to be charged off as bad debt. If the debt is with a collection agency, your negotiations will be with the collector instead of the original creditor.
Amount to Offer
Figure out the total you owe in credit card debt and then decide how much of that debt you can afford to pay. You want to make an initial offer to the creditor or collection agency that is lower than the amount you can afford to pay so that it leaves you room to negotiate, if necessary. Debt settlement professionals often pay no more than 50 to 60 cents on the dollar, according to Bankrate, so avoid paying more than that in your negotiations.
Considerations
The creditor or collection agency may want to place you on a payment plan instead of settling the debt outright, especially in your initial conversation. If your goal is to settle the debt, do not agree to the payment plan and continue to persist in your desire to settle the debt. Inform the creditor that it runs the risk of not receiving any payment at all if your funds run out before a settlement offer is reached.
Warning
When you and the creditor agree on a settlement offer, get the agreement in writing before you make a payment. Pay with a cashier's check or money order, which avoids giving the creditor access to your checking account and prevents the withdrawal of more than the agreed upon sum. Also as part of the agreement, make sure the creditor agrees not to sell the forgiven portion of the debt to a collection agency and if possible, see if the creditor will report the debt as paid in full to the credit bureau instead of as a settled account. Finally, if the forgiven debt is more than $600, the creditor may report it to the Internal Revenue Service as income to you. You will receive a 1099-C form and you may have to pay taxes on that amount.
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