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Debt Management

How to negotiate debt with credit card companies

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

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.

Why negotiate credit card debt?

If you find yourself in over your head with credit card debt, it’s a good idea to see what your issuer can do to ease your load. 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.”

You may believe credit card companies are unwilling to negotiate with you. This is untrue. Turning to your issuer could result in a mutually beneficial solution for both of you.

“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.”

Types of credit card debt settlements

There are varied approaches to settling your credit card debt for less than you actually owe. Sterling and Paul Sundin, CPA and tax strategist, suggest exploring what might work for you. If you decide to negotiate your credit card debt, you have options to consider:

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.

Work with a debt settlement firm

For-profit debt settlement companies work to negotiate lump-sum settlements with creditors. Another option is to turn to them for help, though this is not the best choice.

“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. You should watch out for less reputable debt settlement companies that make tall promises.

How 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.

Bottom line

Sean Fox, president and revenue officer of Freedom Debt Relief, recommends you keep a budget in any way that works for you, never carry a balance, use only one credit card and set up an emergency fund. “Start small and gradually work to have enough in the fund to cover at least six to nine months of basic expenses,” Fox says.

If you don’t believe you can do this on your own, consider reaching out to a professional credit counselor, who could help you with this process. Watch out for debt settlement firms that make tall promises.

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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