How to Get Credit Card Debt Forgiven


Forgiven debt is not for everyone. If you can afford to make your monthly payments on time, and your credit card account is not past due, you may not want to settle your debts. A credit card company will not settle a debt until the account is past due. Accounts that have been settled will have a negative impact on your credit score. But settling can reduce your debt load.

  • Contact your creditors and let them know your situation. If you are unemployed and have a limited income and few assets a credit card company is more likely to offer you a settlement. Before a credit card company will settle with you your account must be at least 90 days past due. According to, creditors take settlements anywhere from 20 percent to 75 percent of the outstanding balance.

  • Counteroffer the debt collector. When a debt collector offers you a settlement, which may be a high percentage, always counteroffer less. Your offer should be substantially lower than what you think the debt collector may approve. In other words, try to make a counteroffer near the bottom of the settlement scale, such as 25 to 30 percent of the balance. If you can negotiate an offer of 40 to 45 percent of the balance, it will be significant.

  • Prepare to pay the settlement balance in full. Once you settle for less than the original balance, creditors want a lump-sum payment. They don't want to take monthly payments, especially since you are paying less than the full balance. This may be difficult to do if you are already past due with all of your creditors.

  • Get your agreement in writing. Always get all the terms and agreements in the settlement offer in writing. This will serve as your written confirmation that your balance is now paid in full. A debt settlement will show up on your credit file as a settled debt, which can reduce your credit score. This information will remain on your credit file for seven years. There is a chance that you will be able to negotiate a clean credit report as a part of your settlement. See if the creditors will remove the derogatory information when you pay in full.

  • Check with a tax attorney or accountant before you do a debt settlement. If the amount of forgiven debt is $600 or more you may have to report it as taxable income. The Internal Revenue Service, (IRS) has some exceptions and exclusions to this rule. Once your debt is settled your creditor will send you a Form 1099-C, which is a debt cancellation form. Check with a tax expert to see how you should handle it. According to one of the many exclusions is insolvency. If your liabilities exceed the fair market value of your assets you are insolvent and your canceled debt is not reported as gross income. You must be in a state of insolvency immediately before the cancellation of debt.

Tips & Warnings

  • If you feel comfortable negotiating a settlement in the area of 20 percent, by all means go for it. Remember: you are in control, and many creditors will accommodate your request.

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