Credit card lending, part of consumer revolving credit, hovered around the $11 billion mark in 2012, and Moody's Investors Service noted in 2012 that credit card charge-offs, lenders writing off borrower debt, and credit delinquencies fell to the lowest level in 20 years. Negotiating credit card debt means a reduction in the amount owed for some borrowers, but for others it means halting interest accumulation and developing an extended payment plan to repay the debt.
The major credit bureaus, including Equifax, Experian and TransUnion, collect information about borrowers and how borrowers pay bills, according to the Federal Trade Commission. Credit reports list the amount of credit debt owed by the credit card holder, amount of regular payments made by the borrower, late payments, and any debt abandoned by the borrower or written off as a bad debt by the business extending the credit. Borrowers negotiating forgiveness for credit card debt receive a negative comment on the credit report. This credit ding remains for seven years, or until the statute of limitations expires when the debt also involves a court judgment.
Negotiating credit card debt involves two types of arrangements. Consumers in the first type of agreement deal directly with the credit card company to negotiate a debt agreement. The second type of arrangement involves negotiating an agreement with a secondary debt company after the credit card lender sells the original debt, typically for pennies on the dollar owed in the original debt. The secondary lender has less investment in the debt, and as a result, more room to negotiate and lower the original debt amount. The flexibility to negotiate a debt reduction from the original lender involves the negotiation skills of the borrower and the flexibility of the company extending the credit. Some lenders agree to significant debt reductions, while others refuse to reduce the debt at all.
Debts repaid to the original credit card lender can remove failure-to-pay negative credit dings from the credit report, but debts repaid to secondary credit holders don't necessarily remove these from the borrower's report. Some credit lenders use in-house credit collectors, and repaying the debt in this arrangement means reducing the impact of a negative comment on your report. The borrower may still have notations for the late payments on the credit report, but negotiations to remove these comments after full repayment of the debt may be possible.
The amount of debt canceled by the credit card company can result in additional federal taxes for the card borrower. The Internal Revenue Service considers the amount written off by the lender as a gift to the credit card holder, and this amount must be declared as unearned income on federal income tax reports.
- Nolo: What Is a Credit Card Debt Write-Off?
- Federal Trade Commission Consumer Information: Settling Credit Card Debt
- Board of Governors of the Federal Reserve System: Consumer Credit
- Nolo: Will the Creditor Forgive My Credit Card Debt?
- Time: Why You Might Owe Taxes on Canceled, Forgiven Credit Card Debt
- Federal Trade Commission: Consumer Information -- Free Credit Reports
- Federal Reserve Board: Monetary Policy Report to Congress July 2012
- Moody's Investors Service: U.S. Credit Card Charge-offs Fall in January, Early-state Delinquencies Reach Another Record Low
- U.S. Government Accountability Office: Credit Cards -- Fair Debt Collection Practices Act Could Better Reflect the Evolving Debt Collection Marketplace and Use of Technology
- MSN Money: 5 Ways to Repair Your Credit Scores
- Jupiterimages/Comstock/Getty Images