Dear Liz: I have $175,000 in credit card debt. Almost all of this debt was due to balance transfer offers over the years which I managed quite well to make sure I had no balances with high interest rates. Now with credit being so tight, one of my issuers has reduced my credit limits and I can’t find any balance transfer offers to extend my low rates. Will the issuers allow me to settle this debt for less than I owe? I always get offers from credit consolidation companies that tell me banks are willing to accept 50% or less of your balance if you pay the reduced balance amount in full. Can I simply call up the credit card company and offer a reduced amount? If I cash out on my stocks and other investments, I could actually pay the debt off in full so I do have the ability to pay. I just never did so since the interest rates were so low.
Answer: The recession has made credit card issuers more willing to accept debt settlement offers, but your savings will come at your credit scores’ expense.
Card issuers really don’t like it when people don’t pay what they owe. When the notation of a debt settlement hits your credit reports, expect your scores to dive.
Some people have little choice but to accept this price. They can’t pay their debt and, for whatever reason, can’t wipe it out in bankruptcy court. In those cases, debt settlement can be the best of bad options.
You, however, have a choice. Don’t make one you’ll regret.
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