Sometimes your credit card debt feels like a millstone around your neck, one that will never go away. But, you do have some options, if you just can’t pay your credit card (or cards) off… It is sometimes possible to negotiate a partial settlement, a workout agreement, a temporary forbearance, or even a reduction in your credit card bill for several months. Be forewarned, however, these options can be difficult to negotiate with the credit card companies, and will likely have a serious negative impact on your credit score, depending on what you decide to do.

What Plan Will Work Best For You?

When trying to negotiate with a credit card company, you have a number of options open to you:

• The Lump Sum Settlement

If you can come up with a sizeable nugget of cash from selling a car, or even getting an inheritance, you may be able to pay off your credit card by offering your creditor a lump sum that is less than what you actually owe. According to Professor Rick McElvaney, the program director for the Center for Consumer Law at the Houston Law Center, “…you may be able to go back to the principal and get a reduction if you pay it off. It’s all up to the individual creditor. In situations like this, it really matters how the deal is structured.” But, before proceeding with a deal like this, make sure that you have it in writing from your creditor that the lump sum will satisfy all your obligations to them. You should also know that paying a smaller sum than what you actually owe will have an impact on your credit score. However, doing a lump sum payment deal will hurt your credit less than if the company does a charge-off, which is when it takes your debt off its books without cancelling your obligation to repay the debt. Finally, the IRS considers debt forgiveness as income, so if you only pay $3000 on a $5000 credit card debt, you’ll owe taxes on an additional $2000 the following year.

• Forbearance

If your financial woes are only temporary, for instance, a long illness that prevents you from working, losing your job due to a layoff or the failure of your employer, then you may be able to negotiate a temporary forbearance. What this means is that your credit card issuer can lower your interest rate, put a halt on all late fees, or even allow you to skip some payments until you get another job or return to your old job. It can be a huge help to beleaguered consumers, but remember that it’s only a temporary break from making full payments. You’ll still owe the principal on your debt and whatever fees accrued before the forbearance was granted.

• Workout Arrangement

This kind of workout won’t make your body stronger, but it might be just thing to get your battered finances back on their feet. Similar to a forbearance, a workout may eliminate or reduce your minimum monthly payment and your interest rate. It might also be possible to negotiate a forgiveness of past punitive fees for late payments or being over your credit limit, which can seriously reduce what you owe. If you do get a workout, be advised that the credit card issuer will cut off that credit line so you won’t be able to use your card. That loss of available credit will damage your credit scores by raising your credit utilization ratio. As with any negotiated settlement of credit card debt, it’s possible to achieve, but there are side affects, including damaging your credit further, so proceed with caution.

• Debt Management

If you don’t feel competent to negotiate directly with your creditors, you can contact a debt management program. This is typically a last resort before declaring bankruptcy, but if you feel you need to, then go with a nonprofit agency associated with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. Once you’ve contact a debt management program, one of their counselors will meet with you to discuss your individual credit situation and will negotiate with your creditors on your behalf. Generally, the counselor will be able to get your interest payments lowered, get some fees reduced or dropped entirely, and arrange to have your payments lowered to ones you can reasonably afford. But, you’ll still owe the original amount. All of your credit card accounts will be covered by this program, and they’ll be closed. Working with a debt management company won’t hurt your credit score, but shutting down your credit accounts will damage your credit score by lowering your credit utilization ratio. It’s a better option than declaring bankruptcy or going with a debt settlement program, though.

• Debt Settlement

This alternative to bankruptcy will probably be the most damaging to your credit. If you’ve already missed some credit card payments anyway, then your credit score will not be damaged any further. Whether you’re doing this on your own, or working with a debt management counselor, what this entails is stopping payment on all your credit cards until you can get your credit card issuer to take a lower payment. When you pay off your debts for less than you owe, know that it will absolutely damage your credit score for at least seven years. Still, paying something on your debts rather than defaulting on them will do less damage to your credit score than declaring bankruptcy and paying nothing. And don’t forget that any debt that your creditors forgive will be considered taxable income by the IRS, so you’ll have to pay some taxes on that amount with your next tax payment. This is the least attractive of all the options, but still preferable to bankruptcy.

Although you may be experiencing some understandable panic at not being able to pay all of your bills, it’s important to stay calm, and realize that you do have options. It’s almost always possible to negotiate your credit card debt downwards.

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