I’m overextended and about to pay off approximately $30,000 in credit card debt and would like to negotiate with credit card companies.
If I settle for a smaller amount owed to the credit card company – will this reflect negatively on my credit report??
Will it hurt your credit, it sure will and here is why. When you settle a debt for less than what is owed you are breaking your original promise to repay. The creditor will show the part of the debt that you paid back as satisfied but the part that was forgiven will appear on your credit report as a charged off debt.
In fact this does accurately reflect the reality of your strategy. Just because the creditor agrees to accept part of the money as payment in full does not change the fact that all of the money was not received to repay your debt. This is important information that others creditors want to know about so they can avoid you in the future. Nobody wants to lend $100 to get back only $50.
While some claim that you can negotiated that the entire account be reported as paid in full or satisfied, this is unlikely to happen with major creditors since the creditors have contractual obligations to report true and factual information to the credit bureaus. If one creditor was allowed to do this then no creditor would be able to make sound decisions based upon the information from the credit bureaus. This would hurt the sale of credit reports and falsify credit scores which would injure the credit bureau information reliability.
In order to get the best debt settlement deals you really need to be at least 90 days behind on your payments and if you do that it will also damage your credit. There are times to settle debts but not just because you want to pay back half of what you owe.