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How to negotiate your credit card debt

Instead of assuming the credit card company has all the power over your finances, be proactive and try to negotiate your debt. Here’s how

Summary

If your mounting credit card bill is becoming too much to handle, it is likely in your best interest to consider negotiating your debt.

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It’s the end of the month and time to pay bills. You glance at your credit card statement, and like in previous months, you’re able to make only the minimum payment.

It’s a plight shared by many U.S. consumers. Recent research shows the average credit card debt per borrower stood at $5,111 across more than 450 million card accounts at the end of 2020

By paying only the minimum, you’re signing up to carry credit card debt for your entire life. But it doesn’t have to be this way.

“It is common for people to feel trapped in the credit card debt cycle, but by understanding the negotiating process you can navigate your way to freedom,” said John Davis, a financial education ambassador for ScoreSense, a Texas-based credit score services company.

Instead of assuming the credit card company has all the power over your finances, be proactive and try to negotiate your debt. Here’s a guide to negotiating your current credit card debt, as well as ways to staying out of the cycle.

When should you consider negotiating your credit card debt?

You may believe credit card companies are unwilling to negotiate with you. This is untrue.

“One of the first things to remember is that credit card debt is unsecured debt, so it isn’t like a car loan where the lender can recoup money when the debtor is in default by repossessing the car,” said Steve Weisman, a Massachusetts-based attorney and professor. “Therefore, a credit card company may be more willing to work with someone having financial difficulties, particularly if they are not as a result of excessive spending, but due to other circumstances affecting the credit card holder’s income.”

Recognizing when you should consider negotiating your credit card debt is important. According to Laura Sterling, vice president of marketing at Georgia’s Own Credit Union, “If you are unable to make your monthly credit card payments, either because your debt is too high or you’ve experienced a hardship, it may be time to consider negotiating your credit card debt.”

If you decide to negotiate your credit card debt, you have options to consider. 

What are your credit card negotiation options?

The ultimate goal of negotiating credit card debt “almost always is to reduce monthly expenses,” said Michael Sullivan, personal financial consultant at Take Charge America. Negotiating credit card debt, adds Sullivan, “should be only done when necessary.”

If you choose to renegotiate your debt, the good news is there are several options. Sterling and Paul Sundin, CPA and tax strategist, suggest exploring what might work for you:

Lump-sum settlement

Offering the credit card issuer a payment in a lump sum will guarantee a lower balance to pay off your debt. Negotiate a lump sum that is reasonable for you.

Ask about forbearance

If you are facing an unexpected hardship, such as a job loss or major illness, many card companies have hardship programs that allow temporary payment forgiveness or other modifications to help you get back on your feet. With this plan, a card issuer may also agree to lower your interest rate, temporarily reduce your minimum payment or waive late fees. Unfortunately, your credit score may still be affected.

Request a workout arrangement

You can ask your card issuer to modify your account by removing past late fees, lowering the interest rate or reducing monthly payments. Don’t be afraid to explore options with your card issuer.

Consider a debt management program (DMP)

In a DMP, you work with a credit counseling company, which is typically a nonprofit.

“A credit counselor will contact your creditors and negotiate a less expensive payment plan on your behalf. If negotiations are successful, you begin making monthly payments to the credit counseling company, and they make payments to your creditors,” said Sterling.

Although credit counseling companies are often nonprofit, they are not free. Credit counseling companies often charge monthly fees. Your credit report may also indicate that you are in a DMP.

Look into debt settlement

For-profit debt settlement companies work to negotiate lump-sum settlements with creditors.

“Debt settlement companies ask you to stop making payments to your card issuer and instead require you to make monthly payments to your debt settlement company to build your account,” Sterling said. “Once your account grows large enough, the debt settlement company will contact your card issuer and make an offer to settle for less than you owe. If the issuer accepts the offer, the debt settlement company pays your creditor and keeps a percentage of the money you’ve paid them.”

This is often a last resort, and if you go through with this option it will lower your credit score.

5 steps to negotiate credit card debt

Negotiating your debt involves a manageable process, and Sterling recommends this sequential approach:

1. Find out how much you owe

Before starting negotiations, check a recent statement or contact your issuer to determine your balance due and interest rate.

2. Make a plan

Decide if a lump-sum settlement, workout arrangement or forbearance makes the most sense for your circumstances. Do you want to handle the negotiations yourself or rely on a professional? Review your current financial situation and risks involved.

3. Contact your credit card issuer

If you’ve decided to handle negotiations on your own, call your creditor and ask to speak with the debt settlement department. Explain your situation and make an offer. Prepare a script beforehand so you know exactly how to make your request. Be honest, clear and polite. If you are unable to negotiate, be prepared to ask to speak with a supervisor or to call back.

4. Take detailed notes

Document the dates and times of your conversations and keep as a reference full names and titles of anyone you spoke with.

5. Get the terms in writing

If you successfully negotiate your debt, get everything in writing. Make sure you understand and agree with the new terms.

How to stay out of credit card debt

It should be a goal for all consumers to stay out of debt, according to Sullivan. Although this advice seems obvious, it helps to adopt good credit card habits. Sean Fox, president and revenue officer of Freedom Debt Relief, explains how consumers can stay out of debt:

  • Keep a budget. Budgeting may not sound exciting, but it is one of the ways to avoid credit card debt. Fox recommends using an app, paper and pencil, or a spreadsheet to keep a budget. “Identify short and long-term goals, which could range from buying a new TV to taking a vacation to retiring at a certain age. Then budget around and for those goals, being prepared to modify,” said Fox.
  • If you use a credit card, minimize its use. Pay attention to how much of the available credit limit you access. Keeping your balances low will help your credit score and prevent you from getting in over your head. Fox recommends using only one credit card.
  • Never carry a credit card balance. Develop an understanding that a credit card is not a license to spend but rather a convenient way to purchase an item. Fox adds, “Not carrying a balance often means learning the difference between wants and needs.”
  • Set up an emergency fund. “It will help you avoid reaching for the credit card when an unexpected expense comes up – such as a car repair, doctor’s bill or other. Start small and gradually work to have enough in the fund to cover at least six to nine months of basic expenses,” said Fox.
  • Save windfalls. If and when you receive extra cash (i.e., tax refund, bonus, commission, gift or even yard sale proceeds), save that money. If you stash the “extra” – in addition to the regular predetermined amount – you’ll see your savings soar and credit card bills plummet.
  • Maintain adequate insurance. Home, auto, health, disability and life insurance can help avoid major credit card debt.

Bottom line

Successful negotiation of credit card debt is possible if you understand the process and your best options.

Last update: April 7, 2021

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Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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