Short answer
Debt settlement is negotiating a payoff for less than the total balance you owe, which the creditor or debt collector agrees to document and accept as payment in full. It works for the right person and the right situation, and it does not work for the wrong one. This guide is built to help you tell which you are.
Key points on this page
- A settlement is a lower payoff amount, documented and accepted as payment in full, paid either in one lump sum or over time under a term agreement.
- The three common solutions in one line each: credit counseling is “what can be paid should be paid”, debt settlement is “paying something is better than nothing”, bankruptcy is “what cannot be paid will not be paid”.
- Most people looking at settlement are in the middle. They cannot fully afford the debts they have, can afford something, and would rather handle it outside bankruptcy.
- Settlement is a way to resolve a debt for less at every collection stage: the bank’s own recovery department, a collection agency after charge off, a collection attorney, or a debt buyer that bought the rights to collect.
- Most of what happens is controlled by the policies and procedures your creditor or collector has set. Knowing them in advance lets you plan the money for the settlement opportunities as they come.
- Credit cards are the most common debt settled this way, but the same guides apply to business debts, medical bills and personal loans. CRN has provided this education and these services since 2004.
Welcome to CRN’s Debt Settlement and Negotiations Guide. This guide makes up the largest portion of the debt relief and credit guides published on this site. That’s because debt settlement does not fit into a tidy package like consolidating credit cards, consumer credit counseling, or bankruptcy. I thought it important to have an introduction to debt negotiation due to the amount, and variations of content, you will find here.
The concept of settling unpaid debts, like credit cards, is not overly complicated, though it is certainly something that cannot fit on a single web page. And once you introduce the different stages of debt collection; and how to negotiate with debt collectors vs settling with your bank; or outline what you can do when settling collections in the court; the content for the debt settlement guide grew larger, and continues to expand.
Credit cards are the most common type of debt that can be negotiated and settled for less than the total balance owed. Much of the debt settlement guide focuses on this from of unsecured debt for that reason. But there are many other types of debts that the guides can be applied to. You will find guides related to settling business debts, medical bills, personal loans, and more, throughout the site.
Get the Most Out of This Debt Settlement Guide
We highly recommend you read through the debt settlement program in order. This will allow you to gain the maximum level of understanding of what credit card debt settlement is, how it will work in your specific situation, when settling debt works best, or even why you might want to avoid debt settlement all together. This recommendation includes any of you reading who may have committed to settling credit card debts that you stopped paying some time ago.
Following the recommended outline for settling credit cards is suggested because:
- Debt settlement, as it is explained by the media, and what is probably more than 10,000 websites, often does not scratch the surface of the topic (it cannot be explained sufficiently in a single article).
- A debt settlement company selling their program to anyone who will listen will often fail at giving you a detailed outline of what they are trying to sign you up for. Opting instead to put profit or sales commission goals in front of your need to be adequately informed.
- You should understand the fundamentals of settling debt so you can weigh the benefits and the drawbacks with clarity – before negotiating and settling debt yourself, or hiring a professional.
Following the way we have laid out this section, no matter what stage of collection you might be in (and especially if you are still current with payments to creditors), puts you in the best position to succeed with debt settlement.
Once you complete your review of our debt settlement guide, you will know more than the majority of sales people who are the front line for selling debt negotiation to the public.
Before You Jump Into Debt Negotiation
CRN advocates settling credit card debt as a personal financial solution. We have provided debt settlement education and debt negotiation services since 2004. We are good at it. We have made our customers, members, and readers good at it. We are also not your Aunt Mildred’s debt settlement company (no offense Mildred).
We have decided to create and publish the online debt relief program for many reasons. We may fully lay out more of the reasoning in a later update to this section, but for now, here is some of the considerations we have in doing this:
Debt settlement works for the right person and the right situation. Debt settlement does not work for the wrong person, nor does it work well for the wrong situation.
We decided to create and publish this guide so that you can tell the difference between whether settling credit card debts is right for you, and if it is, when, why, and how much of your money to put into this method for resolving debt. We hold nothing back. We offer our support freely to the public through dedicated feedback in the comments on virtually every page of the site, and on our DebtBytes YouTube channel.
If we can save you from making uninformed debt and credit decisions that can hurt, rather than help you, we want to. If we can save you money when you settle credit card debts, we will.
What is Debt Settlement?
Debt settlement is what happens when you negotiate a payoff for less than the total balance you owe on a debt. The lower payoff amount will be something the creditor or debt collector agrees to document and accept from you as payment in full. The lower negotiated amount should be something you can afford to pay in one lump sum, or over time if it is a term settlement agreement.
Negotiating and paying a lower amount to settle debts you are already late with is very common. There are elements to settling some types of debts that you can set your clock to because the process can be highly predictable. And there is both safety and comfort in this predictability.
Settling credit card bills, and other debts you cannot afford to keep up with paying, is a pretty straight forward concept. And so is determining whether settling with creditors and collectors is right for you. Let’s start by narrowing down the basic principle of the 3 most common debt solutions to one sentence each.
- Consumer credit counseling and payment consolidation is based on the principle of “What can be paid – should be paid”.
- Debt settlement is based on the principle of “Paying something – is better than nothing”.
- Bankruptcy is based on the principle of “What cannot be paid – won’t be paid”.
If you are looking at debt settlement as a way to deal with problem bills, it is likely because you are in the middle. You cannot fully afford the debts you have now, but can afford something, and would prefer to manage the situation outside of bankruptcy.
How Debt Negotiation Works
Each of your credit card lenders will have a policy for how they handle collecting on accounts that go delinquent. Some of these policies include:
- Getting you back on track by offering reduced payment hardship plans that may be temporarily extended to you for 3 to 12 months, or applied over the life of the balance in a 5 year payback schedule. Read more about credit card hardship payment plans.
- Debt collection efforts internal of the banks own recovery department.
- Charge off your debt as noncollectable and place your account with a collection agency who will bug you over the phone and through the mail to get you to pay.
- Placing your account with a debt collection attorney.
- The legal rights to collect from you could be sold to a debt buyer.
Debt settlement is a method to resolve unpaid credit card bills for less in every one of the scenarios above. That’s as complicated as the debt settlement process will ever be.
It’s the “how will debt settlement work for me” and “is debt settlement even for me” questions that make for the details.
Is Settling Debt Right For You?
Ahhh… the details. Yes, getting the best deals, and the most from settling debt, is in the details. And the details when negotiating and settling can change from one creditor to the next; from one collection stage to the next; and most certainly from one personal set of financial concerns to the next.
The majority of what happens in the process of settling credit card debts is controlled by the policies, procedures and protocols that are set up by your creditor or outside third party debt collectors. Knowing the policies and procedures for each of your accounts you will settle, in advance of the settling, is a huge benefit. You simply plan ahead financially for the settlement opportunities that will be presented, and make the right moves along the way.
You can use this site to help you settle your debts on your own. We offer upfront education about the debt settlement process, supplemented by on the ground and “right now” details provided free in the comments section of this website. And you can get one on one dedicated professional feedback by requesting an expert debt settlement consult over the phone.
We know that many people are freaked out by the concept of negotiating and settling credit card debts on their own. You also have access to professional debt negotiators, and often at the most reasonable cost found in the industry. If you would like to talk to me, Michael Bovee, about that, you can reach me at 800-939-8357, choose option 2.
In the next section I will bluntly outline who debt settlement is right for and why debt settlement is a race. You may already be in the race and not know it.
Continue on in the debt settlement guide to How and Why Banks Settle Credit Card Debt with You.
As you will see throughout the site, I respond to reader questions and comments throughout the day, so feel free to post below for feedback.
This Debt Settlement Guide includes:
An Expert Guide to Credit Card Debt Settlement (you are here)
How and Why Banks Settle Credit Card Debt with You
Types of Accounts to Include in Your Debt Settlement Plan
Why Settling Credit Card Debt is Like a Race
How to Settle Credit Card Debt Quickly
How to Talk to a Debt Collector
How to Negotiate Credit Card Debt Successfully Yourself
7 Largest Credit Card Banks and How They Settle Debt
Get Debt Settlement Letters and Agreements from Collectors
Paying Debt Collectors After You Negotiated a Settlement
I have cc debts from 2012 that I gave not paid on since 2016 , are these debts still collectable or is there a statue of limitations I can rely on.
I’m in Utah
There is a limit of 6 years since you stopped paying in order to legitimately sue in Utah to collect on the debt.
Passing that time limit does not render the debts uncollectible, they just should not sue.
Debt that passes your states SOL, and then passes the 7 year credit reporting life, is often referred to as zombie debt.
Hey Michael just updating you and your followers on my progress specifically with discover. 21k balance. Which I settled today for 50% in one lump sum. I waited until around the 150 day mark to reach out and begin discussing my situation with discover. My initial phone call the agent offered me numerous payment plan options including matching my payments dollar for dollar example would be if I made for $400 payment she would match it and then my account would become current after 4 months. They were very persistent on getting some type of payment even if just was a monthly minimum of a couple hundred before I got off to the call. The original agent told me there were no settlement options on my account I did press a little bit on this and I call back 2 days later and spoke with someone else who told me that a settlement was now available at 60%. I explained I couldn’t afford that and gave them a brief description of what I had available for funds I told them around the 40% mark via a loan from a family member and while she did not give me that option on the phone she told me there could be options down the road before charge off. The interesting part is the day after that phone call and I don’t know if the info I gave her triggered this but all of a sudden 3 settlement offers became available in the discover mobile app where they offered me 3 payments for 60% 2 payments for 55% or 1 payment for 50% due by may 31st. The other alternative was a $330 payment over 60 months which would waive my late fees and extra interest at a 0.99% APR. The 50% was doable and based on my research was a pretty competitive offer so I tried just out of curiosity to call 2 more times to see if they would budge maybe go to 40. But it looks like either internally 50% is now their lowest or my account specifically with the balance and what not 50% was the lowest. The reason I say this is every agent and I spoke to was clear that they have no power over altering the settlement amounts that it systematically done.
Overall it’s a relief to settle my largest balance and it was a surprisingly easy and pleasant experience dealing with discover takes a little persistence and I have to go pretty much up to the finish line I’m 4 days away from charge off but you can get decent results and you are absolute correct they are very unique in how they deal with you.
Congratulations, and thanks for posting about your experience Max. It helps later readers.
Michael:
I recently received a settlement offer from a subsidiary of LVNV (Credit Control, Inc.) for 40% of the amount owed to the original creditor. The original debt was charged off 5 years ago, and under the heading “Important Disclosures” the settlement offer states, “Because of the age of your debt, LVNV Funding, LLC cannot sue you for it.” Three questions:
1. Should I negotiate for a greater discount? (I have the money to pay the 40% right now, but I don’t want to leave money on the table if I don’t have to.) What does your experience with LVNV suggest in this case?
2. What, exactly, does “LLC cannot sue you for it” mean in practical terms? Is it an admission that my debt is now a “zombie debt” and essentially non-collectible by ANY debt collector? If so, why did LVNV make me a settlement offer?
3. Assuming I pay the 40%, what wording should I require LVNV to put in the settlement agreement that will improve my credit score the most? Paid As Agreed? Paid in Full? What wording gives the most “bang” for the buck?
Many thanks. Your web site and videos are incredibly helpful.
Every state has its own statute of limitations that limits how long a collection action can legitimately be brought to the court. It sounds like yours has passed, but that does not mean the debt is immediately no longer collectable. They can still write to you, and call, and also credit report for 7 years.
The reason to settle at this point would likely be credit reporting. A paid collection on your credit will allow you to move on and accomplish credit and finance goals. If you do not have any meaningful ones in the time this will be aging off your credit, you could let things lay.
I too would try to get this lower. You may not be able to, but it is worth a shot. Another 10% off a debt with LVNV collectors that cannot be sued upon would not be out of the question, but be prepared from them turn down any other offer too.
As far as paid as agreed, paid in full stuff, that is just not all that meaningful to get caught up in. More on that here: https://youtu.be/Q7nwb8PvzPk
Dear Michael,
I had written before.
I have debt with Capital One ($3,621.13)
I had been making monthly payment of $100 but they still sent me a email saying that I was being sued in December 2019. Even though, I had being making payments since September 2019.
I won’t be able to make any payments this month due to health reasons and not working.
I have watched your videos in many of them you advice not to attempt negotiating too early after you are no longer able to make payment. You also mention that one is too meek, will lose their temper or get threaten not negotiate with the collectors.
I also don’t have the finance to hire a lawyer to file a defense for me. I also don’t have enough finances to pay 50% or 80%.
From a lot of articles you mention that timing is essential. I am having trouble which steps to take and when.
I really feel stressed with no way out. My health only continues to suffer.
Do I just call the lawyers and offer the $600, I have?
I would really appreciate it if you could advise me on a clear course of action.
Thank you very much,
Awa
You will likely not succeed with that offer.
You may end up sued, and even a judgment against you before you save up enough to settle.
You have the option of a payment plan, but you want one written up formally, not where you send in what you can afford, without an agreement in place.
Do you have other debts than this? If so, what do they all add up to?
I have a $755 electric bill to Gexa that I can not pay, I’ts technically not past due yet until the 18th of February. This company is awful They do extreme price gouging. I’ve switched companies but I’d like to try and settle with Gexa, I could possibly do like $300. I’ve worked very hard to repair my credit over the last 2 years and this would undo all the work that I’ve done.
I would try to work out a payment plan with them.
Settling utility bills is often done with collection agencies, but waiting for that to happen will often also mean waiting for it to hit your credit reports and drag you down.
I have the following situation with Chase: Last payment Aug. 01, 2016, Current Payment Status: Charge-off, Amount past due: $3010
Based on my scenario, is best course of action calling them and try to settle for something like 1000?
Thanks for any advice you can provide.
I have a letter from a collection agency looking for 1200.00 from u.s. bank. I don’t have any paperwork on the credit card use for the last 4 yrs. When I reached out to u.s. bank they said I would have to speak to their collections agent. How do I get the detailed records of this debt?
What is the purpose for getting the detailed records?
Do you have a goal to resolve the debt? If so, who is the collection agency contacting you?
If your goal is to settle, yes, I would call Chase and work through this with them by trying to settle for less.
Get it in writing before you pay.
Know that Chase can sometimes not bend as far when settling with you, as a collection agency working for them would have a couple years ago.
My husband and I have spoken to a BK attorney- chapter 13 is what we would need to do because of our income – we have settled with a couple of accounts but have about 10 or so more to start working with- My husband was served with a judgement filing and we know there is another one coming – we are lost- BK would give is 290 left after paying our normal bills and the BK – that is not going to work – We can pay some each month to start to settle more debt but we just have no idea what to do
You are welcome to click the get debt help tab on any page and go through the steps to schedule a call with me, or one of the counselors. We can review your situation for you and see if we can build a plan for you to stay out of chapter 13.
I can say this..you’ve come to the right place..I would HIGHLY RECOMMEND speaking with Michael…just taking to him takes 90% of the fear away..not to mention just an extreme straight shooter. Gives you the confidence that you can totally handle this ( settlement ) on your own or he will guide you through it pretty much every step of the way…
Hi Michael – I have roughly $118k in total unsecured debt between credit cards and personal loans, all in my name only. Although I’m current with all accounts as of today, because of a recent personal situation I will start to fall behind significantly in the next month and beyond. I’m looking into debt settlement as a way to tackle the situation. Once I stop paying on the accounts, I’ll have about $2,200/month that I can devote to saving/paying settlements, which feels like the 24-month timeline would be aggressive but doable. I’m comfortable with DIY settlement on many of the accounts, but would love any feedback (especially for which ones it might be better to engage outside help) before starting the journey. Here’s a breakdown of the $104k in balances I’m thinking of doing debt settlement on:
Chase Credit Card: $23,000
Lending Club Loan: $19,500
Upstart Loan: $19,000
Wells Fargo Visa Card: $16,500
Best Egg Loan: $8,500
Avant Loan: $5,500
American Express Gold Card: $5,000
PayPal Credit: $2,500
Mariner Finance Loan: $2,500
Regional Finance Loan: $2,000
Accounts I am considering NOT including:
1. Discover Card: $7,000 balance, opened in July 2019 as a balance transfer card at 0% interest until Sep 2020
2. 5/3 Bank Credit Card: $3,500 balance, opened in August 2019 as a balance transfer card at 0% interest until Aug 2020
3. Fortiva Credit Card: $1,000 (plan to pay off in next 60 days)
4. Citi Credit Card: $1,700 (plan to pay off in next 60 days)
5. Capital One Card: $700 (plan to pay off in next 60 days)
Any thoughts/feedback/suggestions would be greatly appreciated!
I would encourage you to schedule a time to talk over your strategy with me. You can do that by clicking the get debt help tab on this page. You have some aggressive creditors, and Chase just started suing again last month, for the first time in 8 years.
You can do this, but to maximize savings, and lower risks, you will want to be as aggressive as you can be with saving up to settle a few of these in the early innings.
You can also reach me at 800-939-8357 ext 2.
I live in Pennsylvania and I have a $530 credit card debt that got sent to collections. My problem is that I have been in contact with the agency to set up a payment plan, but I am trying to verify if the company is real before I pay the debt. And also, if I don’t pay by a certain time how long do I have before they take it to court? By the way, Collection agency is Global Management. Any advice is greatly appreciated.
Who is the original creditor? You can call them and verify who they have your account out with for collection.
When did you stop paying the account?
The original creditor is Credit one Bank and I stop paying about 12 years ago. I called credit one to verify the debt but it was sent to Cach LLC, but I haven’t called Cach LLC to verify yet. Is there any way I can have the debt sent back to the credit one bank and deal with that way instead of with collections?
Just seeing this Greg.
I would not pay a 12 year old debt, but would dispute it off my credit as being to old to be on there. Here is a guide for disputing items off your credit: https://consumerrecoverynetwork.com/dispute-tradeline-diy-credit-repair/
Of all my credit card companies I’ve dealt with, Credit One is the closest to a borderline sham company. Hopefully this was all resolved peacefully.
My husband and I have a mountain of credit card debt primarily with Chase and BofA. I mean like $80000 we have been juggling around with balance transfers and promotional rates. We are current on everything but the promotional rates are starting to expire and it is clear that even with a pretty good income, the situation is not sustainable (minimum payments currently $1400-1500). Realistically we are not going to be able to settle for much more than 30% of all this debt. My question, how likely is it these debts will be sold and how long before that happens? Is it better to wait in order to try to negotiate lower amounts? How likely are we to be sued if we can’t settle for more than 30%. Thanks!
At the time of my reply, neither Chase, nor Bank of America, sell unpaid accounts to debt buyers. They haven’t for many years.
You have a decent shot at getting these done for 30%, but 40% is more common (as an aggregate between the 2).
I do have someone here that can help you do better, but there is a fee for the service. Add that in, and you are probably right where you need to be.
I am trying to settle with Citibank and Discover. I may have mentioned settlement too early with discover as I was only about 90 days late/ Do you think I have a chance to settle with them. My wife went with a debt settling company which charges huge fees to do the settlement from you. I choose to do on my own
I would wait until I am between 150 and 180 days late to talk to Discover about settling for less.
Does your wife have a Discover card as well?
I had a rough patch back in 2005. I received a judgement in SC from Bank of America on 7/15/2009. Due to my lack of understanding of how all this works I thought once judgement was off credit report I was good. I owned no property when judgement was made. I purchase my house in 2013 and now am attempting to refinance when title search found a judgement on me. The judgement is not attached to my property. I think in SC after 10 years the judgement is no longer enforceable and can not be renewed. How should I handle this? I do not believe bank will refinance unless judgement is settled.
Have you talked to the loan officer and shown them the judgment entry date and the law for how long a judgment in SC is good for? You may want to exhaust that angle before trying to settle this.
Thanks for explaining that the debt will either be negotiated to a lump sum or a term agreement, depending on what we can afford to pay. I wasn’t very responsible with my credit cards, so now I’m in a bad situation where I’m unable to pay all of my bills. I’m glad I read your article because you helped me see why using a credit card settlement service could really help my situation!
Please e-mail me and help me make the right decision on my finances.
I recommend building a user profile full of your debts by clicking the get debt help tab at the top right of any page on the site. Once you add your debts you are dealing with, click on talk with an expert in your profile to schedule the day and time you would like for me to call you to go over options.
Michael, if we do debt settlement our own, how to avoid paying tax on the cancelled debt? Last night my friend told me I would most likely get a 1099 from IRS regarding the forgiven debt.
You can avoid paying taxes on forgiven debt whether you settle debt DIY or get help. Read that link to learn how that may apply to you.
The tax implications are different for each of us.
Mike, I have two cards that I have been behind on and have missed a couple payments and made a few payments here and there. I realize this is not helping me at all. Just paying those small amounts are like throwing pebbles at a freight train. I have not fully read all your steps to settlement but it seems like I should just not pay and wait. one balances is 25K with chase and the second is with citicard and is 13K. Should i change banks because I do my banking with chase. I would like to do a settlement over a chapter 13 I am not able to do ch 7 because my house has to much equity in it according to Illinois rules. I do not want to lose my house. I have no other bills that are behind or late. I recently took a significant cut in pay and my wife has been working part time due to child care cost being so extensive we felt it made more sense for her to stay at home. any suggestion would help
I would be working on a plan to save up 35% of the Citibank balance in the first 12 months of delinquency. If you can do it quicker (between 6 and 12 months late), that would be great. I would then focus on settling with Chase after that, and at around 30 percent (sometimes lower).
Can you do that?
I recently called professional collection consultant in CA for a judgement against me for 10k that was filed against me in 2012 for a old credit card that the original balance was 6900.00 I offered them 3k and the collector was not helpful at all told me that they can take 5500 and would rather sit on it then settle for less . My question to you is is this a good offer from them and if it was you would you accept it ?
Judgment debt is hard to negotiate to half off, and you are close to that. If it were me, I would take a deal that was around 50% on a litigation file.
I was served and didn’t go to court my bank account was garnished for about half of what I originally owe the creditor. My bank is holsing the money they took out of my account. I wanted to know if I could still settle? Could I just let them have what they already took and call it even? And how do I do that if I already have a judgment ruled against me?
You cannot let them take what they are already going to get (unless you successfully contest that with the court), and call it good. They will want the rest. You can negotiate a settlement with them for less than what is remaining as owed after they apply what they got from your bank account. But you typically have to wait until that levy order is completed before they will talk about settling the rest.
I recently tried to refinance my house to find my husband and I each have a judgement I called lvnv funding,llc they were unable to find info on my judgement,however they found my husbands it originally started at $3094.00 now they want $9000 his judgement is with assets llc. Mine is $3231.00 even though they can’t find information on me they want 8000.00 from me a total of 18,000. I want to settle with them, I don’t trust negotiating with them I will settle to pay original loan amount but not the 18000.00. They said that they will call me back with additional info regarding me,however I have not recieved a call. should I get a lawyer to assist.
It can make sense to get a lawyer to look into any legal arguments you may want to make. Let me know what state you are in and I will email contacts to any I know of with the experience you need.
If your goal is to simply settle, how long until you have half of what is owed today?
Hello. I am currently retired and living on a fixed montly income and even though I have a lot of credit card debt I am current on all of my bills/credit accounts except for a Sam’s Club credit account (which is issued by Synchrony bank). The current balance on my Sam’s club credit account is approximately $5000 (with a past due amount of approximately $1000.). I stopped paying in August of ’16 after they closed my account in July ’16 due to late payment history. My late payments started around March or April of ’16. I was struggling to pay this Sam’s Club credit account because of the high balance owed and very high interest rate (roughly 30% APR) on the card. They keep sending me notices that I am past due on my account from a company called EGS FINANCIAL CARE, INC. but I have also been receiving notifications from from Sam’s Club Credit also. It doesn’t seem like they have sent my account to an external collection agency possibly because I have other accounts with Synchrony bank that I am current on. I recently received a letter in the mail threatening me with “taking additional steps” allowed under the law. My question is, should I contact them and negotiate a settlement or should I ask to be placed under a financial hardship payment plan? I’m now reaching the 6 month mark without having made any payments. How likely are they to work with me? I would like to make good on this debt I just can’t afford to make high monthly payments at this time. If they do offer me a settlement I might be able to come with the money to pay if off. What would be the best course of action at this point? Thank you.
Once an account goes this long without payment I typically look to settle it. If you can raise 30 to 40 percent in order to fund a deal I would do that if it were me.
You can call and negotiate the payoff with Synchrony, but if they have it placed with a debt collection agency they will refer you to that company. Get your settlement in writing before you pay.