What You Should Know about Credit Card Debt Negotiation?

by R. MAK. on July 2, 2009 · 1 comment

in Credit Card Debt,Credit Score

If you are facing any problem due to credit card debt, then there is a great idea for you to come out of it and that is negotiation. But if you are willing to have a negotiation then it is necessary that you prepare yourself for a long and bumpy road. The probability is that you might have to call several times to your credit card company, talk to several managers, and you may also have to agree to terms that are not very much ideal for  you. It is never said by anybody that debt settlement was easy. But before you take your first step towards negotiation, there are some things that you should know.


Things You should Know about Credit Card Debt Negotiation

You may face a sudden fall in your credit score.

When for the first time you contact your credit card company in order to settle your debt, it is expected that they’ll freeze your credit limit right away. So you should get ready for that. If your cards have reached the highest amount level, that won’t matter so much. But if you’re well below your maximum credit limit, then it could become the reason for the sudden fall in your credit score and that just happen as a result of the lower limit.

Probably you might have to pay taxes.

If you have succeeded in negotiating a lower sum for your debt repayment, at the end you might be owing taxes on that portion of the debt which was forgiven by then credit card Company. It is such that whenever $600 or more of the principal is forgiven by a lender, they file a 1099-C form with the IRS. What it means is that if you manage to arrange a nice lump-sum payment at a discount, than on the difference you’ll have to pay taxes. The thing that you should note is that this only applies to the principal, not to fees or interest rates that get waived.

Bad reports mean bad credit.

Do you have any idea that how your bank will report your repayment efforts to the credit bureaus? You should first find this out before you agree to any arrangement. If you have any partial debt settlement then this can simply have the same bad effect on your credit score as a total default could have.


Also, if partial payments are reported by the bank then this will make you credit score suffer a lot. You should make sure that this must be a part of your deal that the bank will report your payments as on-time and in full. This is the stickiest issue by which debt negotiation is being surrounded, since you have very little influence over how the lender will handle your credit reporting.

What are the things that you can do if you need to negotiate your credit card debt?

It is recommended by the experts that a person should be honest about his financial situation and his desire to pay. You can ask your card company to forgive some of the debt, or you may also ask them for lower interest rates so that more of your monthly payments go toward the principal. In case if you’re considering bankruptcy, then inform the creditor about this; that might be the little push which they need to start working with you.

And the last but the most important thing is that, don’t ever make any payments until you’ve got a written copy of the agreement. By doing this, you will have all the terms clearly spelled out, and if necessary you’ll be able to present the document in court.

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