Hi Terry,

I’m having difficulty paying off my credit card debt and am currently only able to make minimum payments. The card I have had the longest, also has the biggest balance of over 30k. This kills me since I used to pay off my credit card in full every month until I lost my job a few years ago. The credit card company has given me the option to reduce the debt in half, but they would also close my card. My credit score is good currently but how will closing down this long running card affect my rating moving forward?
Thank you,
CW

Terry Says:   Oh, this is tough.  There is no doubt that if you take this deal, the card issuer will market this debt as “settled in default”, which will definitely ding your credit.  But depending on the amount of the haircut they offer (really 50%?), it may be the best deal you can make.  And with the debt this huge, then it might be worth taking the offer.  Ask them what the interest rate on the new balance will be.  Then if they will guarantee a low rate for three years, you might be able to pay off this balance.  But one big question:  Do you have income now, and are you capable of paying off the remaining balance and other card balances on schedule?

One more question:  Are you planning to buy another home, rent a new apartment, apply for new auto insurance, buy life insurance?  A ding on your credit report will cost you in each case. If you want to discuss the specifics of your case, contact the National Foundation for Credit Counseling at 800-388-2227.  You can do it over the phone.  They’re supported by card issuers, so they don’t like to see defaults — but it might be worth a discussion with them.

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