If you get behind on credit card debt and find yourself over-extended or in collections, a debt settlement approach may be one way to wipe the slate clean. Using this approach, you make an agreement with your credit card company to settle and pay off your account for an amount that’s less than what you owe.

Making the Deal

Contact you credit card issuing company directly and ask to speak to a representative that handles debt management, debt settlement or account collections. Be prepared to describe your financial circumstances and explain why you want to settle your debt rather than pay it off in full per the terms of your original contractual agreement. The card company might ask you to provide proof of your finances, like recent bank or credit card statements, and you’ll probably be asked to fill out a financial profile that details what you earn and what you owe. If you’re not in arrears, and you’re still making payments on time, the company might not be willing to make a lump sum settlement deal.

Finding a Figure

Tell your credit card company how much of a lump sum you want to settle your debt for. If the company is open to making a deal, this is usually a point in the negotiating process where you’ll go back and forth over a final payoff figure. The credit card company wants to get as much as possible from you, so start with a low offer -- like 20 percent of your balance. Know in advance what you can afford to pay and don’t exceed that amount. For example, if you owe $500 and you only have $100 to settle your debt, keep returning to that figure during negotiations.

Payoff Options

If you reach an agreement with the credit card company, pay if off as soon as possible. Some companies will ask for a bank routing number or a series of post-dated checks that equal the lump sum payoff, but for personal budgeting and money management purposes your goal should be to reach an agreement and pay off the debt by quickly issuing a final payment. Make sure to request the terms of the agreement in writing so you have proof that your debt has been settled.

Tradeoff Issues

Lump sum payoff agreements usually include closing your credit card account. You may also be taxed on your forgiven debt. The card company will also note your account as beings “settled” rather than paid in full on your credit report. This can hamper future efforts to obtain credit cards and loans, as debt settlement lowers your credit score and indicates that you’ve had problems with responsible credit handling in the past. It is a better option, however, than ignoring debt and allowing it to go uncollected.