Considering Credit Card Debt Settlement?

It's Not Credit Counseling

First and foremost, credit card debt settlement is not credit counseling. With credit counseling and credit counseling repayment plans, your interest rate is lowered and you pay back your entire credit card debt. With a debt settlement, your actual balance is lowered and you pay it off in one chunk sum.

Where's the Appeal?

So what's so appealing about having to pay your credit card company a big chunk of money at once? Credit card debt settlement can be as low as 30 to 50 percent of the original balance of the card. You owe $10,000, but settle for $5,000.

Sound appealing? What many consumers don't realize is that the amount forgiven (if it's over $600) is taxable. It's not just a free gift. You have to pay Uncle Sam a portion of whatever the credit card company waives for you. That can add up if you're being forgiven thousands of dollars of debt, so keep that in mind when you're figuring out just how big of a settlement you can afford.

Another thing to consider is how a settlement is going to affect your credit. A credit card debt settlement shows up on your credit report. It's not going to show up as a balance paid in full and all potential lenders will know you didn't completely live up to your credit card agreement. It is going to drop your credit score, and that makes this option a bit less appealing.

When it Makes Sense

Bottom line? Credit card debt settlement is not a get out of debt free card. You're going to pay for it one way or another. If, however, your only other option is bankruptcy, you might be in a good position to consider a credit card debt settlement offer since it isn't likely to affect your credit as badly or cost as much as a bankruptcy would.