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How to negotiate debt with credit card companies

Don’t assume the credit card company has all the power over your finances, you can be proactive and try to negotiate your debt

Summary

Paying down large amounts of credit card debt can be challenging. You do have the option to negotiate with your credit card issuer which can lighten your financial load.

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It’s the end of the month and time to pay bills. You glance at your credit card statement and, once again, you’re only able to make 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 $5,525 in 2021.

If you have credit card debt that you’re struggling to pay off, it may be worth negotiating your outstanding debt with your lenders. You can negotiate with your credit card issuers to reduce your monthly payments, lower your interest rate, reduce fees and more to make it easier to pay off your credit card balances.

Here’s a guide to negotiating your current credit card debt, as well as ways to stay 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.

“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, lawyer, college professor and financial expert. “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. If you decide to negotiate your credit card debt, consider the following suggestions from Sterling and Paul Sundin, CPA and tax strategist:

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.

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.

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.

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,” Sterling said.

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

Debt settlement firm

For-profit debt settlement companies work to negotiate lump-sum settlements with creditors, 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 for debt, 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 is a manageable process – Sterling recommends the following 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 the representative is unable or unwilling 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 does credit card debt settlement affect your credit score?

It’s understandable if you have concerns surrounding how the debt settlement process will affect your credit score. Unfortunately, debt settlement can hurt your credit score. If you settle a debt with a creditor for less money than you originally owed, this can result in lowering your score by as much as 45 to 125 points.

Alternatives to debt settlement

Debt settlement is not your only option for getting out from under your credit card debt. Let’s take a look at some other options for debt relief that may be available to you.

Balance transfers

If you have multiple sources of high-interest credit card debt, you can consider doing a balance transfer. By transferring debt to a balance transfer credit card with a lower interest rate, you can make paying down your debt more manageable and can pay it down faster as more of your payments will go towards principal than interest.

Having all of your credit card debt on one card can make it much easier to manage your debt, as you’ll only have one monthly payment to make. This move only makes sense though, if you can secure a lower interest rate than you’re currently paying.

Debt consolidation

Similar to a balance transfer card, you can consolidate all of your debt by combining multiple sources of debt into one debt consolidation loan. This can make paying off your debt more convenient, and if you secure a lower interest rate you can spend less on debt payments. If you need help with this process, you can work with a credit counseling agency to come up with a debt consolidation plan.

Bankruptcy

While bankruptcy is typically viewed as a last resort, it may be the right path forward for you. When you file for Chapter 7 bankruptcy, you can get rid of most forms of outstanding debt such as credit card debt. However, some debt like back taxes, student loan debt and missed child support payments are excluded from bankruptcy.

Similar to debt settlement, filing for bankruptcy doesn’t help your credit score, but the bankruptcy process can go much faster, which allows you to move on and start to rebuild your finances sooner.

Bottom line

If you’re struggling with debt, reach out to your credit card issuer to start a conversation. Chances are they’ll be motivated to figure out a plan to help them recoup at least some of their losses.

If you want some help, consider reaching out to a professional credit counselor, but remember there’s nothing they can do for you that you can’t do for yourself.

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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