credit & debt

If I Negotiate a Payoff, Will It Hurt My Score?

Settling debt does come with repercussions.

Q: I'd like to cancel out my looming credit-card debt but keep my credit score intact. Is it possible to negotiate a cash settlement with a card issuer without ruining my credit score?

Settling your debt for less than what you owe will likely lower your credit score a lot. True, if the issuer were to accept the lump sum and simply close your account, your credit score would not suffer. But that's not likely, warns Steven Katz, a spokesman for TrueCredit.com, a consumer-credit Web site owned by Trans-Union. The usual practice is for the issuer to report the number of days the account was delinquent and that the debt was settled for less than the full amount.

That would have a serious impact on your score, says Craig Watts, of Fair Isaac, the firm that created FICO scores. The impact on your score would lessen over time, but the black mark would remain on your credit report for seven years.

But don't let your desire to keep your credit score intact prevent you from tackling the problem. Talk with a consumer counseling agency to see if a debt-management plan would work. That could be less damaging to your score than a settlement, says Gerri Detweiler, an adviser for Credit.com, a credit-education Web site. If not, try to negotiate a settlement -- but make sure that the creditor does not send the balance to a collection agency.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The 25 Cheapest U.S. Cities to Live In
places to live

The 25 Cheapest U.S. Cities to Live In

Take a look at our list of American cities with the lowest costs of living. Is one of the cheapest cities in the U.S. right for you?
October 13, 2021
Gen X: How to Make Sure Your Future Self Remains Funded
personal finance

Gen X: How to Make Sure Your Future Self Remains Funded

If you’re a Gen Xer, like me, now might be the right time to talk to a financial professional to learn more about how to adjust your retirement planni…
October 20, 2021

Recommended

Should I Use Credit or Debit?
Basics

Should I Use Credit or Debit?

Credit cards offer more protections and rewards, but debit cards reduce the temptation to overspend.
October 4, 2021
New Buy Now, Pay Later Options
Smart Buying

New Buy Now, Pay Later Options

If you’ve been considering a BNPL plan, make sure the credit card in your wallet doesn't already have you covered.
September 29, 2021
Think Twice About Applying for Credit
Basics

Think Twice About Applying for Credit

Credit card issuers are offering a lot of incentives, but your credit score could suffer.
August 27, 2021
New Perks From Our Best Rewards Cards
Smart Buying

New Perks From Our Best Rewards Cards

No annual fee, new tiered rewards and more cash back are some of the offerings.
July 24, 2021