What to Consider before Negotiating Credit Card Debt

The challenge of repaying multiple credit card debts can be extremely difficult to overcome, especially if you’re unable to reduce the overall amount of debt owed. However, before negotiating credit card debts with card companies it is important to understand the risks, benefits, and possible outcomes of debt negotiation. Although negotiating with the credit card company without the help of a professional debt negotiator can be exhausting and discouraging process, it is possible to see results with the proper approach and a bit of persistence. While the majority of cardholders that attempt to negotiate with credit card companies are unable to have the debt completely forgiven, some are able to have the amount of the debt reduced or consolidated to another credit card with more ideal terms and conditions. Consider the following before negotiating any form of credit card debt.

Unsuccessful Negotiations Could Damage the Credit Score

Depending on the reaction of the credit card company it is possible for debt negotiations to actually worsen the credit score, particularly if the negotiator becomes impatient or impolite with a representative from the card company. Attempting to negotiate a credit card debt independently often results in an immediate credit freeze, as card issuers often see this as an indicator of financial desperation. For best results, it would be ideal to have a professional negotiator contact the credit card company on your behalf, preferably before the debt has already caused damage to the credit score. In some cases, it may be possible to have negative credit items removed from the credit score after repaying the negotiated debt.

Negotiations May Cause Potentially Detrimental Items to Be Filed on the Credit Report

Even if the credit score does not incur significant damage due to the unsuccessful debt negotiation, it is possible that the lender or credit card company may file an item on your credit report that describes the debt that was forgiven and/or the negotiations that took place, and this item may be viewed negatively by prospective lenders or card companies in the future. Many card companies are reluctant to approve an applicant for a credit card with appealing terms and conditions if they have a history of defaulting or negotiating debts. Thus, debt negotiation should be used as a complementary last resort technique in conjunction with debt consolidation to reduce the total amount owed, rather than as a primary approach in repaying credit card debt. Sadly, some credit card companies will file a negative item on your credit report even after the negotiated amount has been repaid. Fortunately, if you can prove that the debt was repaid, or is older than seven years past due, it is relatively easy to have inaccurate negative items removed from your credit report.

Taxes May Still Be Owed on Forgiven Debts

Even if you’re able to successfully have some of your debt forgiven, you may still wind up owing taxes on the amount that was forgiven, especially if the forgiven debt totals more than $600. Any debt higher than this amount forgiven by a lender must be reported to the IRS via a 1099-C form. Although such taxes would only be applied to the card’s principal (not interest rates or outstanding fees), they could somewhat negate the benefit of reducing the debt or having it forgiven. Ultimately, the decision to negotiate credit card debt should be based on the amount of money owed, your history with the credit card company, and whether it would be cost-effective to hire the paid services of a professional debt negotiated.

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