Anyone struggling with credit card debt likely wants to find a way to end their financial misery. However, keeping up with the monthly payments may prove challenging. Some borrowers might even miss payments for several months, driving up their interest rates and penalties. These troubled borrowers could explore options for debt settlement and see if it is right for them.

The High Cost of Credit Card Troubles

Even though it becomes apparent that the borrower cannot pay off their credit card debt, they continue on the same path of pain the minimum amount each month. Sometimes, they cannot make the full payments. So, they send partial payments, leading to missed payment fees and other costs. Remember, the interest keeps accruing on the remaining balance. Knowing how to calculate credit card interest rates could provide insights into the true cost of carrying debt each month.

Collection Woes

Those who find themselves unable to pay could experience collection actions and all the devastation collection actions, late payments, and no payments bring to a credit score. When unable to pay or refinance, debt settlement might be an available option. As Lantern Credit notes, “the total interest charges for each day will be added up,” meaning the remaining balances become costly. Not taking action after running into trouble could cause more financial harm.

The Basics of Debt Settlement

A debt settlement agreement refers to the credit card company’s willingness to forgive some of the debt, understanding that the borrower pays the remaining balance. When a credit card company believes the person cannot pay the balance, the lender may feel inclined to accept a debt settlement offer. The decision could be self-serving since the lender might worry about the borrower filing for bankruptcy. The lender might not receive any payments if the debt becomes discharged if that happens.

A Reasonable Offer

Those believing the credit card lender will accept any offer might be mistaken. The lender is not under any obligation to settle, so don’t expect them to agree to a $500 settlement on a $10,000 balance. When negotiating with the lender, a more reasonable percentage could be acceptable. Sometimes, the borrower works with a third-party credit service to handle negotiations on their behalf.

A Payment Plan

Someone suffering from financial troubles might not have the money to make a lump sum payment. Therefore, it may be in the credit card lender’s best interest to set up a payment plan for the settlement amount. Three or four monthly payments could be workable, although a down payment might be necessary. Anyone engaging in settlement talks needs to understand the terms of the deal. Defaulting on the agreement could lead to collection actions or violate the settlement agreement, restoring the entire balance owed.

Taxes Owed

Be aware that debt settlement deals might result in taxes owed on the amount forgiven. The credit card company may face requirements to file 1099, opening doors to IRS assessments.

Debt settlement refers to the credit card company forgiving a portion of the balance while agreeing to a payoff figure. For some troubled borrowers, debt settlement deals might be helpful.