We Have $100K in Credit Card Debt That We Need to Deal With


Dear Steve,

We have over $100k in credit card debt that has accrued over time due to various unfortunate life situations.

We are current on all of our debt, however, we only make the minimum payments and cannot make a dent in the debt.

We were on the verge of a bankruptcy filing, but we have a family member who is loaning us $100k (as an advance of our inheritance) to get it all under control. My credit score is about 640 and my husband is about 720.

The question is, should we try to negotiate a lump-sum payment with the CC companies? Do we try to do it as NOT a debt settlement, but more of an agreement – since we aren’t late on payments, etc. does that matter?

What will the effect be on our credit if we negotiate – is it different if it’s not a “settlement” – is that even a thing?

We don’t use the cards at all now, it’s debt that has just accumulated, and basically, we just pay minimums. We would like to maintain one or two cards (we currently have 10+) to utilize earning points on a couple of regularly paid (and would be immediately paid off) bills.

Also, we are a 1 car family at the moment (car is paid off) and we will need to get a second car in the next couple of months; we worry what impact the above will have on our credit and buying a new car.

To put it simply:
1) Do we negotiate a lump sum payment that is less than what is owed?
2) If so, what effect will it have on our credit?
3) If it’s really bad, how long will it take to rebuild?



Dear Sarah,

Thank you for reaching out to me. Borrowing against your inheritance is one way to go but there are factors to consider.

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For example, is it more important to hand over $50,000 more than you need just to eliminate the debt quickly?

Does it make more financial sense to preserve $50,000 of your inheritance and focus on rebuilding your credit?

If you do not have any significant assets in your name you may be eligible to file for Chapter 7 bankruptcy protection and eliminate all the debt is about 90 days for about $2,000 in bankruptcy fees. You can easily rebuild your credit afterward.

Negotiating is the same as settling. It is a mutual agreement to repay less than you owe to satisfy the balance. If you are not insolvent as you settle the debt you may owe income taxes on the forgiven debt and it will still appear on your credit report for seven years. You’ll have to do the same credit rebuilding afterward as you would following a bankruptcy.

Paying off the debt in full using borrowed inheritance money is another strategy. However, it is the most expensive option since you are also losing future retirement income.

If you want to make the decision to follow the math then bankruptcy might just be the mathematically obvious choice. I think you should find a good local bankruptcy attorney and have a free discussion about what bankruptcy would mean for you. Bankruptcy is the fastest way to get a fresh start for the least amount of money.

Before you settle or pay the debt in full, I would feel most comfortable if you consulted with my debt coach friend Damon Day. He can talk to you over the phone and walk through those other two options to help you with information and the realities of the pros and cons of payment in full versus settlement.

Making the ultimate decision based on how it impacts your credit would be a mistake. You need to factor in your current financial situation, how you got to this point, and what your future financial goals are.

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There is clearly a solution here but the absolute right answer is going to be best made holistically by considering your entire situation.


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Damon Day - Pro Debt Coach

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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