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Credit Counseling, Debt Management, Debt Settlement

How to Get Out of Credit Card Debt Without Paying Everything You Owe

By Bruce McClary | Tuesday October 6th, 2020

dangers of debt settlement

Debt is tough. Sometimes it is hard to imagine getting out of it, and you can feel like your back is against the wall. One idea, that sounds good in theory, is to somehow get out of debt without paying it all off. Of course, this is an appealing strategy, but pursuing it can cause more harm than good. Here are the ways you can technically pay off debt without paying everything you owe, along with important reasons to consider other options instead.


In this article, we are talking specifically about credit card debt. There are other types of debt that have “forgiveness” options, such as student loans. However, there are not typically formal “forgiveness” options through major credit card companies. When you use your credit cards, creditors have the full expectation that you will repay the money. After long periods of missed payments, your creditors may lower these expectations and charge-off the accounts and send them to collections. After this period, there may be opportunities to pursue alternative payment arrangements for less than what you owe. However, these always accompany damage to your credit score.


Debt settlement is an agreement with a creditor to pay less than what you owe but still have the debt considered satisfied. There are two general types of debt settlement. The first is debt settlement that you negotiate on your own. We call this “DIY debt settlement.” The second type is a professional debt settlement. In a professional settlement, you work with a settlement firm that manages your debt reduction strategy.

Unfortunately, professional debt settlement is an extremely risky option that rarely works out in your favor. There are two reasons why you should avoid this option at all costs, no matter how good it may sound. First, you can cause significant damage to your credit score when you work with a debt settlement firm. Debt settlement revolves around a scheme in which you avoid paying creditors and you send payments to the settlement firm instead. Settlement firms claim that your lack of payment gives them negotiating leverage with creditors, and they are able to offer lump-sum payoffs to the creditors from the money you have been sending them. However, not only does this rarely work (more on that in a moment), but it wreaks havoc on your credit score. You will rack up delinquencies and other negative marks if you follow the scheme. Even if your settlement is successful, that will cause more credit score damage because settled accounts are listed on your credit report.

Second, debt settlement has a very low success rate. So not only can your credit take a beating, but it may take a hit without you ever seeing the purported benefits of actually settling your debts. Studies have shown that most debt settlement clients do not settle half of their debts, even years into the debt settlement process. Very few people are ever able to settle all of their debts when working with a settlement firm.

Debt settlement is not cheap, either. You can expect to pay fees between 15 and 25 percent of the enrolled debt. On top of that, if your debt is forgiven then the forgiven amount is treated as taxable income!

As you can see, while settlement sounds like a good shortcut it can create significant headache, expense, and credit damage, and it may leave you much worse off than you were before.

What about DIY settlement?

While working with a firm to achieve a debt settlement has many drawbacks, negotiating a settlement on your own can be a more viable and safe alternative. However, it is not perfect and only makes sense in a few situations. To achieve DIY debt settlement, you would contact your creditor and negotiate a lump sum payment for less than you owe that the creditor would accept in exchange for considering the account satisfied. If you reach such an agreement with a creditor, you must get the terms in writing. Otherwise, you risk paying a lump sum without being able to prove that the creditor agreed to accept it as a settlement.

DIY settlement can be difficult to achieve before your account is charged off by the creditor. Creditors just do not have much incentive or interest in accepting a settlement offer until you are very far behind. By that point, your credit score will likely have taken a pretty big hit. Additionally, a settlement you negotiate on your own can still be reported to the bureaus. Therefore, while DIY settlement is safer than working with a fly-by-night settlement firm, it does have many of the same drawbacks. The main advantage is that you can avoid the fees charged by a firm.


Another debt relief strategy that may provide for partial debt forgiveness is bankruptcy. There are several different types of bankruptcy, but individuals usually file for Chapter 7 or Chapter 13 bankruptcy. Whether you can file for Chapter 7 or Chapter 13 depends on your income and whether you qualify for Chapter 7 under the “means test.” Chapter 7 bankruptcy is a fairly quick process and can wipe out your unsecured debts through what is called a “discharge.” Chapter 13 bankruptcy can also provide for a discharge, but typically only after you complete a repayment plan, which takes three to five years.

Bankruptcy can cause major credit damage. The lead up to bankruptcy will create significant harm, but even the bankruptcy itself will be reported to the credit bureaus. Chapter 7 bankruptcy remains on your credit report for 10 years, while Chapter 13 remains for seven years.

For some, bankruptcy is the best option for moving forward. In fact, the NFCC provides guidance related to bankruptcy through two forms of counseling that are required by law as part of the bankruptcy process. Particularly if you are eligible for Chapter 7 bankruptcy, it may be your best option moving forward. However, it is a very serious decision with long-term consequences and should always be thought of as a last resort. Those who are not eligible for Chapter 7 may find that there are more favorable alternatives to bankruptcy that will create less long-term harm.

Better Options

There are better options than debt settlement and bankruptcy. If you are struggling to make your payments then you may benefit from changing the terms of what you owe rather than attempting to pay less than your full balance.

Consolidating or refinancing your credit card debt is one way to make it cheaper. You could roll your debt into a new account with a lower interest rate which, could make your payments cheaper and accelerate your repayment. However, if your credit score is not very good then you likely will not qualify for good rates, and this method will not make financial sense for you. Do not fall for the trap of a “consolidation loan” with terrible terms that really does not make you better off.

For most people, a debt management plan may be the best option. This program provides for a structured repayment plan to pay off everything you owe under the direction of, and with the help of, a credit counselor. Typically, debts on the plan qualify for waived fees and reduced interest rates, which means that the plan provides many of the same benefits as consolidation while still being a viable option for people with less than stellar credit.


Paying less than what you owe sounds like a great solution when you are in debt. But the methods that can turn this dream into reality have very serious negative consequences. If bankruptcy is the best way forward for you, then should certainly pursue it. Just remember that it is a last resort, and you will want to consider other options first. Debt settlement, on the other hand, is seldom a good idea. If you can negotiate a settlement on a debt that is already overdue then that may be a good solution. But you should stay away from professional debt settlement firms at all costs.

If you can’t have any debt forgiven, you can still receive helpful modifications, such as lower interest rates. Alternatives like this can make your debt load easier to manage without harming your credit score to the same extent as settlement and bankruptcy. If you would like help reviewing your options and making a plan to move forward, you can contact a credit counselor for free assistance.