Have America’s credit card habits changed since the recession of the late ’00s? According to a recent study by Card Hub, U.S. households reduced credit card debt by just over $26 million during the first quarter of 2016. While that may sound impressive, it’s actually the smallest first-quarter debt pay-down since 2008, in the earlier days of the recession.

With $71 billion added in 2015, Card Hub is projecting that our country will break the $1 trillion credit card debt level for the first time by the end of 2016. If credit card debt is holding you back financially, you might be considering debt settlement. Here are some facts to consider when deciding whether or not debt settlement is the answer.

Credit Card Debt Settlement Facts To Know

1. Debt settlement usually involves a single payment.

Debt settlement is just that: a settlement. The creditor agrees to accept a lesser amount in turn for immediate cash. Make sure you negotiate based on the amount of ready cash you have or you could end up going from one hole to another.

2. You will need to provide solid evidence of your inability to pay.

Any type of debt is a serious commitment. Credit card lenders are not going to reduce or forgive your debt simply because it’s an inconvenience to you. Be prepared to provide legitimate reasons for your hardship, such as job loss or extensive medical bills.

3. Discharged debt is subject to income tax.

While you may not see it that way, the government considers discharged debt to be taxable income. Consider how the write-off amount could affect your tax returns.

4. Not all debt is eligible for settlement.

Debt settlement is a tool used almost exclusively for credit card debt. Obligations such as mortgages, car loans and alimony can’t be addressed with a settlement plan.

5. Debt settlement should be negotiated before the debt reaches collections.

Lenders want to recover as much debt as possible. Turning a debt over to a collection agency is the last resort, so if your debt has gone into collections you have almost zero leverage in negotiating any type of settlement.

6. Credit card debt settlement will affect your credit score.

This is a hard truth to face, but even though you are making a good faith effort to settle your obligations, settlement will negatively impact your credit score. The good news is that you can rebuild the score with responsible use of credit, and settlement saves you from sinking further into debt until you are completely under water.


Daniel R. Gamez, an attorney focusing exclusively in debt relief, is licensed to practice in all state and federal courts in California and Texas. Mr. Gamez owns and operates the Gamez Law Firm in San Diego, CA. For more information, please contact Daniel Gamez at 858-217-5051, daniel@gamezlawfirm.com or use our online contact form. Stay updated with the latest debt relief tips by following on Facebook and Twitter!