If deep in debt, can you negotiate before you're late?

You can try, but don't stop payments to force the issue

By Tanisha Warner

Credit Care

Tanisha Warner is the communications manager for Money Management International, where she manages educational content designed to teach consumers about personal finance topics. She writes "Credit Care," a weekly reader Q&A about debt issues, for CreditCards.com. Ask a question 'Credit Care' archives

Dear Credit Care,
I have $32,000 in credit card debt with three credit cards. A family member is willing to help me pay most but not all of that amount. Though I have been making minimum payments, on time, for years, I want to reduce the amount of the payoff. How can I do this? Which card company should I contact first? Two are from the same company, and I use both of them on occasion. The other is one I don't use at all. How long does it take to sort it all out? What do I say? How can I expect to be "forgiven?" -- Patty

Dear Patty,
You can certainly attempt to negotiate with your creditors for a less-than-full-balance payoff on your credit card accounts. However, it is unlikely you will be successful if you are not behind on payments. Although I understand you would like to get the debt paid in full with the funds you have available, from the perspective of your creditor it would not make sense to settle the account when you have a steady payment history.

You would start the negotiations by calling your creditor and asking to speak to someone who is allowed to negotiate payments on the account. Explain your situation and then request from that person a less-than-full balance pay-off amount. Should you come to an agreement on a settled amount for the account, make sure you get the agreement in writing from the creditor before you send the payment. One thing to keep in mind is that your creditor is likely to list your account on your credit report as "settled" or "paid for less than full" or similar wording. This listing on your accounts will likely cause a drop in your credit score.

Should you not be able to negotiate a less-than-full balance pay-off amount with your creditors, I do not recommend that you stop making payments in an effort to reach your goal of settling your accounts. What you might consider instead is using the money that your family member is willing to provide to pay off in full as many accounts as you can. I would suggest you start with the accounts that have the highest interest rates. Because your family member is willing to provide "most" of the funds needed to pay your debt, you should be left with a manageable amount after making all the payments.

Moving forward, make a concerted effort to pay off whatever balance is left on your card(s) and, more importantly, have a spending plan in place so you are not adding additional charges to the accounts. You have been given a great chance by your generous family member to pay off your large credit card debt and start over. After paying off large credit card balances, many people find themselves back in the same situation a few years down the road. The best way to avoid accumulating more debt is to follow a plan so you are not spending more than you earn.

In addition, start or add to an emergency savings account of six to 12 months' living expenses and don't use credit for anything that you don't have a plan to pay off in 90 days or fewer.

Handle your credit with care!

See related: A generic budget: guidelines for spending categories, Keeping credit score high when you have a big debt

Tanisha Warner is the communications manager for Money Management International, the largest nonprofit, full-service credit counseling agency in the United States. She manages educational content designed to teach consumers about personal finance topics. You can find more money management advice on Blogging for Change and MMI's Facebook page.

Credit Care answers a question about a debt or credit issue from a CreditCards.com reader each week. Send your question to Credit Care.

Published: November 19, 2012

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