negotiating for lower c. card balance (pay, taxes, credit, charge)

[SamNC]

hello.

Due to a divorce and child support payments, I racked up about 17K worth of credit card debt. My plan is to borrow from my 401(k), and pay it back in five years. My understanding is that this won't trigger any penalty or taxes, provided that the entire balance is paid off in full. I can afford the monthly automatic reduction in my paycheck.

Is it possible to negotiate with my credit card holders to reduce the balance and: a) not have it considered a "charge off"; b) it not harm my credit any; c) the forgiven amount not be considered taxable income? All of my credit cards are current, and I am not behind in any of the payments.

Any help would be appreciated. If I have to pay off all the credit cards in full, I will, and I will make sure not to get into this position again!

[duster1979]

a) It won't be considered a "charge off," but it will be noted on your report that it was a settlement.
b) It probably depends what your credit is like now. I settled a couple years ago and my credit rating has only gone up since then, but it was in the toilet before that. If your score is fairly high now you will probably get dinged short-term.
c) You'll receive a 1099 for the amount discharged. If you don't have the assets to pay the debt in full at the time you can file a form 982 to exclude the discharged debt from your income. They don't require any supporting documents so even if you do had the assets available you might be able to get out of paying taxes on it if you don't mind gambling on a possible audit.