Credit card settlement, also known as debt arbitration or negotiation, is the process in which the creditor and debtor negotiate a binding agreement to reduce the amount of a loan to ensure that funds are paid.

There is a benefit to both sides of the issue. For the debtor, the benefits include smaller payments, an end to harassing phone calls and dunning letters, and the goodwill of the creditor. There are agencies and attorneys who specialize in these negotiations, and there are internet sites dedicated to offering advice for do-it-yourself arbitration. No matter what path you choose there are a few things you need to consider before you begin.

First, no creditor will negotiate with you as long as they are still receiving the minimum payment due. They have to believe there is a real possibility of you declaring bankruptcy before they will agree to talk. They will acquire a current credit report before they talk to you. If they feel, you are being less than honest with them about your situation they will continue to try to collect the debt and may even sue you for their funds. Remember, honesty with your creditors will garner more favor than drama. You probably won’t have your debt forgiven, but they consider negotiation to be in their best interest.

Second, credit card debt settlement does not protect you from litigation by a creditor. Declaring that your circumstances have forced you to propose negotiation does not compel a creditor to agree to it. Only a court order can do that and you have to declare and prove bankruptcy to acquire that order.

Almost all creditors will agree to negotiate reduced payments, stop future finance charges, and lower your interest rate. They would rather get a portion of their money back than none at all. This makes credit card debt settlement a viable option.

How negative will the impact be to your credit score? That depends on the total amount of your debt and how many creditors it involves. You must have at least two thousand dollars of accumulated credit card debt even to attempt a settlement. Obviously, if you need to settle with a dozen or more creditors the impact on your credit score will be more severe than if you are dealing with only a couple of them.