(NewsNation) — Debt settlement is a last resort option for someone looking to get out of credit card debt, and there are tax implications for those who go that route. Americans collectively owe more than $1.6 trillion in credit card debt, with the average balance now at $6,329, up 30% from 2021. Borrowers who have exhausted other options may be considering debt relief, but it's important to remember that canceled debt will likely be considered taxable income. Here's what to know. Is credit card debt settlement a good idea? What is credit card debt settlement? Creditors may agree to settle your debt for less than you owe if they think you can't pay it back. For example, let's say you owe $2,000. A card issuer may agree to let you pay off your debt for $1,000, forgiving the other $1,000. To do that, you can call your credit card company and negotiate with them directly. The size of the settlement will depend on several factors, like the amount you owe, your payment history and how delinquent the account is. It's important to remember: an account marked as “settled” is not the same as “paid in full” and can hurt your credit score. Here are 4 tips to get out of credit card debt You also might consider a third-party debt relief company, but the Consumer Financial Protection Bureau (CFPB) says you should tread carefully. For-profit debt relief companies often charge expensive fees with no guarantee that your debt will go away. Their tactics typically encourage borrowers to stop paying their credit card bills, which can also tank your credit score. "It may not work, and even if it does, the late payments are really bad for your credit," Ted Rossman, senior industry analyst at Bankrate, told NewsNation in a recent interview. What are the tax implications? In general, if a creditor agrees to settle your debt, the settled amount gets taxed as ordinary income. For example, let's say you have a $10,000 debt, and the lender agrees to accept $6,000 and forgives the rest. That means you would have $4,000 in taxable income to report on your tax return. So even though you didn't receive actual money, you still need to report the canceled debt when you file your taxes. From there, the exact amount owed will depend on your income tax bracket and other factors (filing status, deductions, etc.) that impact your tax burden. If you cancel $600 or more, you'll get a Form 1099-C from your creditor showing the amount canceled and the date of cancellation. Even if you don't receive a form, you're still required by law to report it. There are a few exceptions. If you manage to cancel your credit card debt through a gift or an inheritance, you won't have to pay taxes on it; likewise, if your debt was canceled as part of certain types of bankruptcy. Are there better ways to get out of credit card debt? Because it's risky and can damage your credit score, debt settlement is generally considered a last resort. Instead, experts say it's worth looking into other options first. Balance transfer credit cards allow you to refinance your debt at a lower rate. Working with a nonprofit credit counseling firm can also help you come up with a plan. Often, you can simply call your card issuer and ask for a lower rate. Creditors are typically willing to work with those struggling to make payments, and many have specific hardship programs in place. "That can include stuff like deferred payments, reduced minimum payments, waived fees, temporarily lowered APRs,” Matt Schulz, LendingTree’s chief credit analyst, told NewsNation in a recent interview. "But you’re not going to get that stuff unless you reach out and tell them your story," he added.