How to Negotiate Credit Card Debt
Kirk P.
If you’re struggling with credit card debt, you may consider negotiating with your creditors. Negotiating your credit card debt can help you get your finances back on track. This process involves contacting your credit card issuer and settling your debt at a reduced rate or lowering or deferring your monthly repayments.
Learn more below about how to negotiate credit card debt, what it involves and whether it’s right for you.
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Can you negotiate credit card debt?
While not all credit card companies will negotiate your debts with you, some may be willing to settle your outstanding balance for less than the total amount you owe.
Because credit card debt is unsecured, a creditor can’t take your assets if you don’t pay. As a result, creditors might be willing to negotiate a settlement or other arrangement to recover as much money as possible. You can contact lenders about your financial circumstances and see if they will make concessions based on your inability to pay your original obligation.
One of the most common ways to negotiate credit card debt is through debt settlement, also known as debt adjustment. It involves negotiating with creditors and agreeing to pay a reduced amount in full. Debt settlement frees you from debt obligations on settled accounts and prevents bankruptcy.
Before negotiating your debt, you may want to think about the consequences, especially if you want to improve your credit score. Lowering or deferring monthly repayments means it takes longer to pay off your liabilities and reduce your credit utilization ratio. These are all factors that can lower your credit score overall.
Additionally, if a creditor agrees to your settlement offer, they will report your debt as “paid-settled” to credit bureaus. Settling a debt negatively impacts your credit report for up to seven years and makes it hard to build a good credit score in the short term.
How to negotiate credit card debt on your own
If you want to negotiate your debt, you can use a debt settlement company or do it on your own. Approaching a creditor and negotiating a settlement offer by yourself will avoid fees and risks from a settlement company. If you decide to negotiate independently, follow the main steps outlined below.
Confirm the total amount owed
Assess your total debt liability by listing the names and contact details of all the credit card companies you owe money to. Then, call each one and confirm the total amount you owe, including penalties and interest. Alternatively, you can check your most recent credit card statements.
Decide which settlement type would best suit your financial situation
There are different ways to settle your credit card debt or manage your monthly repayments. The best settlement type for you will depend on your financial situation. Here are your options.
Lump-sum payment
One option you have to settle your debts is to pay it all off in a lump-sum payment. Your creditor would offer you a reduced amount you’d pay off all at once. This will allow you to pay off your credit card debt faster than if you continue making regular payments to a creditor.
For example, you can ask a creditor if they will accept 60% of the total amount you owe if you pay a lump-sum payment by the end of the month. Your creditor might not agree to your offer and try to settle for a higher percentage.
Typically, once the company accepts your settlement offer, you will pay the amount in one payment. However, some companies might let you make multiple payments over a short period. If you make multiple payments, you might still have to pay interest until the final installment.
Workout arrangement
A workout arrangement is an agreement between you and a creditor that modifies your monthly credit card repayments. Your creditor might do one of the following:
Let you pay less interest every month on your credit card debt
Spread the cost of your repayments over a longer period, reducing the amount you pay every month
Defer your monthly payments for a specific amount of time
Reduce or eliminate fees and penalties on your credit card account
Write off a portion of your debt, lowering your overall liability
Remove charge-offs or other negative credit factors
Some companies might only agree to negotiate once you default on a debt for a specific amount of time, while others won’t enter into an arrangement at all.
Hardship agreement
Like a workout arrangement, a hardship agreement can revise your monthly credit card repayments. However, a creditor would only enter this agreement if you face financial hardship. Each creditor has a different definition of hardship, but some common situations that can make you eligible for revised payments include the following:
Recently losing a job
Temporarily or permanently becoming incapacitated to work because of an accident or serious medical condition
Incarceration
Divorce or legal separation
You must prove your hardship with documents such as medical records and bank statements.
Contact your credit card issuer’s debt settlement department
After assessing your debt liability, call each credit card issuer and ask to speak to someone in their debt settlement department. This will kick-start the negotiation process. If a creditor has passed or sold your debt to a collection agency, you may need to negotiate with debt collectors directly.
Explain your situation and what will work for you
Most likely, debt settlement departments won’t offer a huge settlement offer or agree to reduce your monthly repayments at the beginning of your first call. You need to explain your financial circumstances and why you want to negotiate your debt. It might help to write down what you want to say to a debt settlement agent and refer to these notes during your conversation.
If you want to settle your debt, demonstrate how you will pay it at a reduced amount. For example, if a credit card issuer agrees to settle your debt for 60% of its total value, you must prove you have the funds to pay this amount in a lump sum.
You will often need to negotiate debt over several phone calls before a creditor agrees. If they ultimately agree, ask them for a confirmation of the amount you will pay and the payment date. Then, you’ll contact the company again and settle your debt.
Best practices to follow when negotiating credit card debt
Settling your debt can be tricky and time-consuming, so there are best practices you should follow. Below are some tips to get the best deal when negotiating your debt with a credit card company.
Be kind and professional
There’s no guarantee a credit card issuer will agree to negotiate with you. However, you can improve your chances by keeping calm and professional during phone conversations with debt settlement agents. These professionals will likely ask you about your personal and financial circumstances before entering an agreement, which might seem intrusive. Answer these questions to the best of your knowledge.
Don’t give up on the first try
Negotiations with lenders can sometimes take months. Don’t give up if a debt settlement agent refuses to negotiate during your first call. Wait a couple of weeks and contact your credit card issuer again. You might find information online from people who have successfully negotiated with credit card companies. Use that information to make your negotiations more successful.
If you want to avoid dealing with agents over the phone, a debt settlement company could increase your chances of settling your debt or lowering your monthly repayments. These companies negotiate on your behalf and have experience communicating with creditors.
Get your agreement in writing
Once a credit card company has accepted a settlement offer or other arrangement, get it in writing. Your lender should send you a letter confirming your agreement and related terms and conditions, including your new monthly repayment amount and due date(s).
Document your communications with the credit card company
Ask for and write down the names of all the debt settlement agents you speak to during phone calls. Also, note the dates and times you communicate. Documenting this information proves helpful if you encounter a problem in the future, such as a credit card company not honoring a settlement offer you successfully negotiated with an agent.
Sometimes, a creditor will contact you about a settlement after you start the negotiation process. It will usually be in the form of a letter. Keep this letter safe and use it to negotiate your debt further. Act quickly if a settlement offer is only available for a limited time.
When to use professional debt settlement services
Debt settlement companies have experience negotiating debts and could have more success reducing the amount you owe than if you negotiate independently. However, there are some risks.
You might want to use a debt settlement company if you owe money to multiple credit card companies and don’t have time to negotiate with each one. Negotiations with some lenders can take months. Additionally, if you’re not confident in your negotiation skills, you may want to get the help of someone who knows how to speak with creditors and what kinds of deals are realistic.
However, debt settlement companies often charge expensive fees that range between 15% to 25% of the amount of the settled debt. These fees could mean you owe more money than you do now, leaving you in a worse financial position. Say you owe $10,000 in debt, and a company negotiates a $9,000 settlement with your creditor. The settlement company charges 25% for their services, resulting in $2,250 of fees. That brings your total owed amount to $11,250.
Additionally, hiring a debt relief company could harm your credit score. The company may ask you to stop paying your debt while they work on the negotiation process. But this will lead to more debt.
If you decide to go with a professional debt settlement company, choose one with a good reputation, preferably one accredited by an industry organization like the American Fair Credit Council. Also, only work with a company that is transparent about its fees and realistic about your chances of getting a settlement offer approved by a creditor or collection agency. Review the Consumer Financial Protection Bureau’s (CFPB) guidelines before deciding.
U.S. states have different laws determining how you negotiate and settle a debt. For example, most states require debt settlement companies to have a license and follow industry regulations that protect consumers.
The Federal Trade Commission (FTC) also requires a debt settlement company to clearly state how much their services cost and what you need to save to settle your account. Companies must also tell you if a settlement will harm your credit report or affect your tax liability. According to the IRS, if some of your debt is canceled for less than what you owe, you must report it on your tax return that year.
Knowing when it’s time to negotiate
If you’re going through a major life event like a job loss and can’t afford to continue making repayments on your accounts, it may be helpful to negotiate your debts. Even if you’re in a less serious situation, obtaining more favorable repayment options like lower monthly repayments can drastically improve your financial future.
Negotiating debt and settling it can also help you avoid filing for bankruptcy under Chapter 7 or 11. This legal process will negatively impact your credit score and your ability to obtain credit for up to ten years, depending on the type of bankruptcy.
If you’re looking for other ways to improve your financial health, stay out of debt and raise a bad credit score, you may want to consider other options such as debt consolidation loans and removing collections from your credit report.
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Posted Sep 14, 2023
Your go-to guide on how to negotiate credit card debt. If your credit card debt has gotten out of hand and you want to negotiate, this article will prepare you.
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