Credit Card Debt Management

There is an art to credit card debt negotiation, and it’s not for the faint of heart. The first thing to remember is that the collector cannot get payment if the debt has passed the statute of limitations. Also, you should not have to pay for charged-off debt that you’ve already paid taxes on as if it were income.

If it is not past the statute of limitations, there is an outside chance that you could be sued, depending largely on the amount of money involved. It is always better to settle your debt, if possible, not only because you owe it but so as to prevent it from reappearing years later and haunting you. Because it may be with a third-party collector by the time you get around to paying it, you could settle your debt for a fraction of its true value. This is because that third-party collector bought that debt from your lender for pennies on the dollar and virtually any money they can collect from you is their profit. However, don’t forget that the difference between what you pay and what your debt actually amounts to is considered taxable income.

One major point: Something many consumers - and most debt credit counseling services - forget to negotiate is how the debt settlement will be reported. Your final payment amount is not the only thing on the negotiating table. You want that account to read, “Paid as Agreed” on your credit report. According to DebtSteps.com:

Although [Consumer Credit Counseling Services’] primary goal is a valuable one, they usually forget to negotiate on how the account will be reported, which means that although your debt is settled, your credit report will be ruined. And besides settling your debt, your goal should be to negotiate how this debt will be reported to the major credit bureaus.

If you are going to reinitiate contact with the collectors, you should ideally be prepared to pay in a lump sum, not in payment plans. This is to prevent any messiness like garnished wages, bank accounts or seized assets - again, an outside chance (depending on the monetary amount involved), but always a possibility nonetheless. Furthermore, before any money changes hands, get in writing from the collections agency the amount of the final debt payment and the fact that it will be marked “Paid as Agreed” on your credit report. Try to get a receipt of payment or at least save bank records showing that payment was made.