Debt Settlement

Yes You Can!

Yes, you can settle your credit card debts without paying someone to help you. There is no legalistic formula. No special skill set is required. The only thing you need is a telephone and the desire to end your debt nightmares.


However, before you begin you need to be organized and prepared. First, locate your last credit card statement. There should be a telephone number on the credit card statement for “customer service” or “billing inquiries”. Call the number and request a breakdown of your bill. You will want to see how much of your bill reflects: (a) purchases, (b) cash advances, (c) interest, and (d) fees (late, over the limit, etc.).

Debt SettledSecond, prepare a budget. You need to understand how much money actually comes into the household and how much goes out. While tempting, do not kid yourself. Be realistic with your budget. Also make sure you budget and plan for onetime expenses like car and HVAC repairs.

Third, after you have completed your budget prioritize your expenses. Expenses like food, shelter and transportation take priority. At the bottom of the list would be credit card expenses and other unsecured debts.

Fourth, set up a bank account from which the settlement funds are to be transferred from – if a settlement is reached. This account should be set up at a bank where you do not currently have a checking account and to whom you owe n money to. This way, you are in complete control of the process should it go south.

Make the Call

Now you are ready to make the call. The customer service representative who answers the telephone likely will not have the authority to settle your account. Nonetheless advise them of the purpose of your call and request to speak with the department that handles settlement arrangements, or workout arrangements.

During this process, it is important to take notes of who you communicate with. Keep a notebook for this purpose. Remember, the persons on the other end of the phone are making notes of every conversation as well. Once you get someone from the loss mitigation department or workout department, get the person’s name, ID number (if there is one) and a direct dial number or extension. When you finish the call, jot down a brief summary of the conversation with the date and time.

What To Say

Be candid. Chances are there is some life event that brought you to this point. Whether it was a divorce, medical bills or job loss, explain your situation. Express your desire to pay while at the same time explaining the financial challenges you are facing. Try to get the creditor to make the initial offer.

After the creditor makes the initial offer, thank them and advise them that you will get back to them shortly. When you call back, advise the person who answered the phone who you were speaking and what they had offered. Nonetheless, advise them that you are considering alternative methods for settling the debt (only if true). At this juncture, make a very low counter-offer – one which you know will not be accepted and should be about 15% to 20% of the outstanding obligation. When rejected, express your appreciation for their assistance and advise them their proposal is just more than you can afford.

At this juncture, you should have a good idea of the settlement parameters and they should have an understanding of your financial challenges [perhaps a bankruptcy or the need to borrow from retirement funds or family members]. Call them back after a few days and make an offer of about 25% to 30% of the outstanding debt. At this point take heed in their response and attempt to come to a mutual agreeable number. When close to a deal offer the creditor an immediate cash settlement and offer to allow a wire transfer from a bank account you previously established

The 1099 and Tax Implications

Chances are, if your offer is accepted and consummated, you will receive a 1099-C form from the credit card debt holder. This form indicates that you received income by way of debt forgiveness. There are, however, two exceptions to the incurring of such a liability: 1) bankruptcy; and 2) debt settlement where you remain insolvent. Nonetheless, it would be wise for you to review Publication 908 (Rev. October 2012) from the Internal Revenue Service and/or consult with your accountant.


Do not get overly concerned about your credit rating. If you are reading this, yours credit is less than satisfactory. It is never “worth it” to pay more to receive some alleged positive rating resulting from debt settlement. Settle for the neutral rating that the debt is settled. I would never “pay cash” to potentially improve my credit rating. After all, it was your credit management, or the lack thereof, that created the present predicament.