How will a settlement affect my credit?
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I have a little more than $20,000 in credit card debt that I can’t pay off. I’m considering a settlement with the credit card company or filing bankruptcy. How would a settlement affect my credit?
Forget about settlement
Most credit card companies will NOT accept a settlement. Anything short of full balance payment is considered only in rare cases such as permanent change of finance, like total disability or.
Even if they settle, it will have a significantly negative effect on your credit because the forgiven portion of the debt will be reported to the credit bureaus as settled or charge-off. Both are serious negative items and will affect your score significantly.
In addition, you’ll receive a 1099 for the forgiven portion of the debt and it will have to be included in your income tax.
You can only settle after the debt is already defaulted by the credit card company and sold to collection. You’ll have a better chance of negotiating a settlement with them, but your credit will take a bigger hit.
Bankruptcy will damage your credit the most, and you may end up paying more than the original $20,000 in elevated interest rates, insurance terms etc. Consider it only as last resort.
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