Credit card debt settlement sounds appealing, but is virtually impossible.  Many people who find themselves in credit card debt want to settle it.  They think they can call the credit card company and ask them to lower the payment or take a lower amount to resolve the debt. However, credit card companies offer no flexibility.

Credit Card Companies Don’t Negotiate

If you’re struggling to pay your credit cards and need help, realize the credit card companies do not help.  These companies make their money by charging large interest rates on your balance.  Have you ever noticed on your credit card statement that it’ll take you 20 years to pay off the balance?  That’s ridiculous, but it’s how the credit cards make their money.

Also, credit card companies know that some people get into financial trouble and will default on their payments.  This is a cost of doing business for the credit card companies.  They assume no more than 1% of their portfolio will go into default, and despite that, they still make a lot of money.

If you want to negotiate credit card debt settlement, then you need to stop making your minimum payments for six months.  After six months of non-payment, the credit card company will “charge off” the debt.  This doesn’t mean the debt goes away.  Instead, the credit card company decided not to pursue further payments and sold the debt to a collection company. This is why you will not get any relief from a credit card company because they made money off your interest payments and someone paid them for the debt.  Credit card companies are like casinos, they always win.

Collection Companies Will Negotiate Provided You Have the Cash

credit card debt settlementAs noted by Craig Johnson, you still have to pay the credit card debt even though it was sold to a collection company.  However, a collection company who buys credit card debt will negotiate settlement in two ways. First, they will accept a monthly payment provided you pay the full amount back including the interest.  But this really isn’t a solution because if you could afford the payments, you never would have stopped making the minimum payment to the credit card company.  Second, the collection company will accept a lump-sum payment less than the amount owed. Collection companies will accept a lower amount because they paid pennies on the dollar to purchase the debt.  However, most people who default on their credit cards do not money in the bank to pay a collection company.  Also, keep in mind, you pay taxes on the amount of the debt you settled.

For example, assume you owe a credit card with a $10,000 balance and it is now owned by a collection company.  You can possibly get the collection company to take $4,000 and resolve the entire debt.  However, as noted above, you need to make a lump-sum payment of $4,000 (no payment plans) and you’ll pay taxes on the $6,000 you avoided.  Many times, credit card debt settlement can change one debt problem into a tax issue.

Bankruptcy is a Better Solution than Credit Card Debt Settlement

The best way to get rid of credit card debt is to file chapter 7 bankruptcy.  Bankruptcy eliminates all credit card debt.  A chapter 7 bankruptcy gets rid of credit card debt within 90 days.  After bankruptcy, you can get new credit cards and rebuild your credit score to 700.  It’s absolutely true. Why? Credit card companies make a lot of money off the interest payments and they are willing to bring you back now that you’re debt free and able to make monthly payments again.

Don’t waste your time with trying to settle your credit card debt.  Call Colorado Debt Help for a free consultation to discuss how to eliminate credit card debt in bankruptcy as it’s a far better alternative.