What to Know Before You Negotiate a Credit Card Settlement

If you want to improve your financial situation, and negotiating credit card settlements is part of the plan, there are several things that you need to consider. While debt elimination is undoubtedly a positive step, if it is not done carefully, it can have many unintended effects.

Credit Scores

You may think that by arranging to settle, you are doing a great thing. In reality, you may be doing yourself a great deal of harm, especially if you are planning to eliminate your debt in lump sums. Lump sum settlements can impact your credit score in the same manner that a charge-off would. There are other terms that a credit card company may agree to that may adversely affect your credit report. So be aware that the manner in which a credit card company reports your settlement payments determines how your credit score will be affected.

Debt Management Programs

You may be one of those individuals who feels that it is better to allow someone else to handle the negotiating. You may be convinced that you will get the best deal by doing so. Before you go out and get enrolled in a debt management program, there are several things that you need to consider.

Yes, some of these businesses can effectively negotiate a credit card settlement. However, for many closing your credit card accounts is part of their service package. Some people may welcome this move. Others may not be as happy. Closing your credit card accounts can negatively affect your credit. Furthermore, it may be difficult to open new accounts later.

Many of the businesses that offer to manage your debt will add to it. Some companies charge large sums of money for their services. Fees are commonly calculated as a percentage of the debt involved. You must also do your homework before choosing a debt management program because many of them are scams and they will make promises to do things that cannot be done.

Taxes

The companies that you negotiate with may fail to warn you that certain settlement agreements will have tax implications. The IRS may hold you liable for taxes on a percentage of your forgiven debts.

Legal Assistance

The fact that you can negotiate a settlement does not mean that it will be easy. You may be correct to assume that it is a task best handled by someone else. Instead of a debt management program, however, you may find that a debt settlement attorney better serves your interest. Attorneys are often able to offer you the widest range of services.