When credit card debt overwhelms you, you might be able to negotiate with the card issuer to pay it off for pennies on the dollar. While a debt settlement plan with a credit card company may help your financial situation, it could destroy your credit. In most situations, you have to sabotage your credit before the issuer even hears an offer.
Considerations
Most credit card companies won't listen to a debt settlement offer until the borrower misses several payments. Debt settlement companies often advise customers to stop paying their bills, but this guarantees to destroy a person's credit score. Not paying your bills for 90 days, for instance, drops a score by 70 to 135 points, according to CNN. A bankruptcy, the worst item you can have on a credit score, drops it by 130 to 240 points.
Effect
When a credit card company agrees to settle for less than the amount owed, it usually reports the account to the credit rating bureau as "partially paid" or "settled." Having a debt paid back for less than the balance is an extremely negative item and almost as bad as a bankruptcy, because you cause the lender a loss. If this is your only negative item it will have a greater impact than if you had several collections or charge-offs.
Benefit
Taking the hit of a settled account might be better for your credit in the long-term than constantly having missed payments on your record. Also, "paid, but settled" is still better than having an open, delinquent account or an account sent to collections when a lender pulls your report. Though negative accounts stay on a report for seven years, creditors weigh accounts within the past two years the most.
Alternative to Settlement
You could go to a credit counselor who may be able to work out a debt-management plan with creditors. In a DMP, the debtor gives the counselor a single payment to be broken up between all creditors. Plans typically take 36 to 60 months to complete. but the creditors report the account as paid as agreed to the bureaus.
Tip
If you decide to go with a settlement plan, try to negotiate for a "delete letter." In return for paying 35 to 50 percent of the debt, the creditor might be willing to claim the account was listed in error to the credit reporting agencies, according to Bargaineering.
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