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How to negotiate credit card debt

how to negotiate credit card debt

You can negotiate credit card debt on your own or with the help of a professional. When doing it on your own, you can expect a series of steps, including collecting the necessary information, contacting your lenders, stating your case, and getting it in writing if an agreement is made. With a professional, you’ll have to provide all the information and documents required, and they will do the work for you.

If you are currently drowning in credit card debt, you are not the only one. Many Americans are in the same predicament as you. Total American household debt reached $17.06 trillion in the second quarter of 2023.1

You may have even gotten to the point where you need to take out quick cash loans or bad credit loans just to cover the payments. 

However, we can assure you that there is a way out, and your life can be much easier once you make it out the other side. In this article we’ll help you by looking into how to negotiate credit card debt. 

Is It Possible To Negotiate Credit Card Debt?

Contrary to popular belief, bankruptcy is not necessary for debt settlement. Credit card issuers are far more amenable to negotiating credit card debt than commonly understood. Thinking about this issue from the perspective of the card issuer can help you understand why they are so often willing to negotiate debt with customers. 

Why Would a Credit Card Lender Be Willing To Negotiate Debt?

Credit cards are unsecured debt or unsecured loans, so if you are not able to pay your debt, the credit card issuer loses a significant amount of money. They would much prefer you to pay the outstanding debt rather than default or resort to bankruptcy to rid yourself of it. Given a choice, credit card companies would choose debt settlements at a reduced balance if it means they will lose less money.

Additionally, your credit card issuer knows that they are likely at the bottom of your priority list when it comes to bills when you are in financial trouble. Sure, missing credit card payments will result in late fees and damage your credit score, but your housing and other essential needs always come first. 

Therefore, credit card companies can become incredibly willing to negotiate credit debt settlement when it might be their best option of getting a majority of their money back.

Determining When Debt Negotiation Is Necessary

The decision to pursue credit card debt settlement options should not be taken lightly. Before deciding to try to negotiate your debt with your credit card, look into any other options that might be possible for you. Analyze your income closely to determine if you can adjust your budget to afford a debt repayment plan like the snowball or avalanche method. 

You can also do a bit of research into whether debt consolidation or balance transfers could make your debts more manageable. In some instances, when a borrower can consolidate credit card debt through a personal loan, a lowered interest rate, and a single monthly payment cause repayment to become feasible again.

If you can reduce expenses enough to pay over the minimum payment, then it might be worth it to try living more frugally to pay off your debt in this way. But if your credit card debt cannot be resolved through more traditional means, then, and only then, should you pursue negotiating credit card debt. 

Second To Last Resort

It isn’t accurate to say that debt settlement should be your last resort as that is likely bankruptcy. Debt negotiation is your second to last resort, the solution you explore before filing bankruptcy. 

There are instances where bankruptcy is necessary, and even settling debt directly with the credit card issuer will not suffice. 

However, most financial experts advise borrowers to first contact their credit card companies to see if a solution can be worked out before resorting to bankruptcy.

Debt Settlement Types

It might be comforting to those who feel intimidated by the prospect of negotiating credit card debt that many borrowers have taken this path in the past. Many credit card issuers work directly with debt settlement companies and already have organized plans in place for debt settlement. 

Let’s take a look at some of the most common types of debt management plans offered by debt settlement companies: 

Workout Agreement

A workout agreement is a plan for repayment typically made after your credit card account is already in default. Entering into a workout agreement with your credit card company might get you an interest rate reduction and/or a cancellation of late fees you might have accrued in your default. 

In addition to this, the credit card company might offer you a payment plan with a more affordable minimum monthly payment. You must comply with the terms of the workout agreement to retain the new interest rates and payment plan. If you are out of compliance, your card issuer does not need to notify you before increasing the interest rates.

Lump-sum Agreement

A lump-sum settlement allows you to handle your debt with a single payment. Typically, a credit card company is willing to accept a significantly reduced amount if you can handle it in a lump-sum payment. Credit card companies often prefer this lump-sum settlement plan because it means they can get a majority of the debt owed at once without worrying about the borrower defaulting again. 

For example, let’s imagine you owe $10,000 on a credit card account. The credit card company and the debt settlement company they work with may agree to settle your debt with a lump sum of $7,000. Keep in mind that this debt management plan could have unintended tax consequences as, if reported to the IRS, the debt reduction could be considered taxable income.

Hardship Plan

Suppose you are experiencing unique circumstances in your financial situation, such as a job loss or medical issues. In that case, some debt settlement companies might enroll you in a hardship program to handle your credit card debts. A hardship plan is a debt settlement program typically designed specifically for the borrower’s unique financial situation. 

Debt management through a hardship program was commonly offered by credit card issuers during the COVID-19 pandemic as a means of debt relief for many during a trying financial crisis. There isn’t a set criterion that every debt settlement company abides by. The best way to see if your circumstances qualify you for a hardship plan is to discuss it directly with your card issuer. 

Strategies for How To Negotiate Credit Card Debt

If you believe one or more of these debt management or settlement options could help you with your credit card debt, it is time to devise a game plan for broaching the topic with your card issuer. This is often the most intimidating aspect of attempting to negotiate credit card debt. 

Having a few simple steps to follow can make it a lot easier:

StepDescription
1. Review Your Debt and Options– Assess the total debt you owe.
– Determine the number of credit cards and their respective balances. 
2. Call Your Credit Card Companies– Collect customer service numbers for each card issuer.
– Schedule a time for the call when you won’t be rushed.
3. State Your Terms– Clearly express your financial struggles and why a solution is needed.
– Present your case firmly and factually.
– State your preferred approach for debt management.
4. Pay Close Attention– Take detailed notes during the call.
– Ask relevant questions and retain information provided.
– Be prepared for transfers to more authoritative representatives.
– Be persistent and make follow-up calls if necessary.
5. Get Agreements in Writing– Request written confirmation for any settlement agreements.
– An agreement is only official when received in writing.

Below is more information on each step:

  1. Review Your Debt and Your Options

The best way to prepare yourself is to review all the facts concerning your credit card debt. How much do you owe? How many credit cards do you have, and what is the balance on each? How many missed payments do you have on your credit report? What available credit do you still have? What is your current interest rate, and what interest rate would be more manageable for you to pay? What kind of monthly payments would be affordable with your current finances?

Answer all these questions for yourself, so you can determine what debt management plan could work for you. If you are looking into lump-sum settlements, figure out exactly how much you can offer the credit card company. 

You want to be sure of what kind of plan you need and what you can afford before calling your credit card company so you can’t be talked into something that isn’t right for you.

2) Call Your Credit Card Company

Gather all the customer service phone numbers for each card issuer. Write down their information with all the details you have about your debt so you can have it all in one place. Plan when you will call the credit card company, so you have enough time to not feel rushed. It might take a while, so it’s good to schedule a time when you won’t be distracted or frazzled.

Prepare yourself to experience holds and transfers between departments. Don’t allow yourself to feel put off if the customer service representative exhibits a lack of understanding or an unwillingness to negotiate at first. Once you lay out your case firmly, you might see a shift in attitude.

3) State Your Terms

State clearly that you are struggling to make your minimum payment and why. Be as factual as possible but make it clear to the card issuer that you have explored other avenues and conclude that relief in the form of a hardship, management, or settlement plan is necessary.

If you know what you can afford and how you wish to manage the debt given the options, state your terms to the representative. Whether you want to pay a single sum or work with a debt settlement company for a payment plan, state what you wish to do firmly, calmly, and confidently. 

4) Pay Close Attention

We highly recommend that you take detailed notes throughout the phone call and ask questions that come to mind. Pay as close attention as possible to keep track of all the information the representative offers you just in case it becomes relevant later. 

If the person you have been talking with for a while has to transfer you, stick with it, especially if it will lead you to someone with more authority. You may need to call back several times, but persistence will help you be taken seriously. Keep at it until they are ready to work with you, so you don’t need to resort to contacting a bankruptcy attorney.

5) Get Any Agreement You Make in Writing

If any of the credit card companies you are attempting to negotiate with agree to some kind of settlement with you, request that they send you the agreement in writing. Only when you get the settlement agreement in writing will it be official. 

How Will Debt Settlement Affect Your Credit Scores?

Negotiating credit card debt will impact your credit scores, which is one of the reasons it should only be done when your options are limited. Your credit score might have taken a hit already if you had missing payments on your credit card bills. If you were already in default or on the verge of default, you likely lost your good credit score a while back. 

Credit card companies and the debt settlement companies they work with may report updates on your accounts to the major credit bureaus. This will obviously be better for your credit score than continually missed payments or remaining the standing of default. 

However, when you settle the debt through negotiation, your credit card issuer will not report it to the credit bureaus as paid in full but rather as settled, which counts as a negative mark on your credit report. 

Though this might feel incredibly discouraging, know that it is perfectly possible to recover from debt settlement’s harmful impact on your credit. 

FAQS: How to Negotiate Credit Card Debt

Are there any tax implications when settling credit card debt?

Yes, the IRS may consider forgiven debt as taxable income. If a credit card company forgives a significant amount, they might send you a 1099-C form, which you’ll need to report on your tax return.

What happens if I break the terms of a negotiated debt settlement agreement?

If you fail to meet the terms of the agreement, such as making the monthly payment on time, a lender might reinstate the original debt amount, add back any forgiven interest rate amounts or fees, and resume collection efforts.

How does debt settlement compare to credit counseling or debt management plans?

Debt settlement involves negotiating to pay less than the total amount owed, while credit counseling and debt management plans focus on creating structured payment plans without necessarily reducing the principal amount. Each has its pros and cons, and the best option depends on individual circumstances.

If I successfully negotiate my credit card debt, should I close the account?

Closing a credit card account can impact your credit utilization ratio and credit history length, potentially lowering your credit score. It’s essential to consider these factors before deciding to close an account.

If I’m facing financial hardship, should I consider debt consolidation through a loan or credit card, or both? How will these options impact my credit reports?

When facing financial hardship, both debt consolidation loans and credit card balance transfers can be viable options to manage debt. A debt consolidation loan allows you to combine multiple debts into a single loan, often with a lower interest rate, with one monthly payment. A credit card balance transfer, on the other hand, lets you move balances from high-interest credit cards to a card with a lower or even 0% introductory rate. Both options can provide relief, but it’s essential to understand the terms and potential fees. As for your credit reports, initially, applying for these options might cause a slight dip due to hard inquiries. However, timely payments and reduced debt utilization can positively impact your credit.

Conclusion With CreditNinja

Negotiating your credit card debt is possible, whether you want to go about it alone or with the help of a licensed professional. The goal with debt negotiation should be to get a more affordable payment schedule and reduce your overall debt. When done right it can really help your finances. However, there are many other ways to manage debt, which you should learn about before pursuing negotiating. To learn more check out CreditNinja’s dojo!

References:

  1. Household Debt and Credit Report | Federal Reserve Bank of New York
  2. How To Negotiate Credit Card Debt | Forbes Advisor
  3. 6 Strategies To Negotiate Your Credit Card Debts | Upsolve
  4. How to Negotiate Credit Card Debt | The Ascent

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