pay credit card debts off fasterSettling a credit card debt for less than the balance due is a common strategy to pay off debts faster and with less money. While the tactic is a favorite of debt consolidation and settlement practitioners, it isn’t always in the borrower’s best interest, here’s why:

It rarely goes through. Credit card companies are unlikely to settle for less than the total current balance unless someone is significantly behind on late payments. Even in a late payment case, settlements for less than the amount owed are rare until the bill goes into collections and is off the books of the credit card company.

It may hurt your credit. Paying in full and paying partially are completely different matters. On your credit report the company can report your bill as paid in full or note if the account was settled and closed. If you negotiate with your credit card company to reach a settlement for less than the amount due, get it in writing that the company will not report the payment as being part of a settlement. Ideally, have the company stop reporting the account altogether.

It may make it more difficult to use a particular bank in the future. Banks have memories, and settlements may make it more difficult to be approved for a loan from the same bank in the future.

Settling a debt is not new; borrowers have agreed to make special deals with lenders for a very long time. However, before going into it, think about the consequences and whether or not they are applicable to your particular situation.

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