How To Negotiate Credit Card Debt

Posted on December 5, 2020 in Credit Cards

If you need to know how to negotiate credit card debt with companies on your own, you’ve come to the right place. In today’s high tech world cash is no longer king. While the average cash purchase is around $22, the average credit or debit purchase is $112. With this in mind it’s not really a surprise to learn that the average credit card debt for an American adult is $6,028 and is only increasing year after year. The economic and emotional strain from trying to juggle credit card debt can be quite overwhelming and sometimes the best option is to learn how to negotiate credit card debt on your own and turn your payments into something more manageable. 

Negotiating credit card debt is a fairly common practice and there are many options available to anyone wishing to do so. 

Credit card debt is considered unsecured debt, which means that falling behind on a payment doesn’t yield asset forfeiture the way an auto loan or mortgage could. As a result of this, alongside the potential for a borrower to declare bankruptcy to erase the debt entirely, credit card companies are very willing to negotiate. 

Simply put, while creditors would prefer the entire amount owed to be paid in full, they will much rather take some payment as opposed to none at all. The key to any successful negotiating is knowing your options.

Ways How to Negotiate Credit Card Debt:

Credit Card Forbearance

The first step anyone looking to negotiate their debt should take is to figure out the root cause of the debt. Essentially, was the debt created because of a short term issue or is it more of a long term problem? 

For a short term crisis, such as losing a job or having work hours reduced, the best solution would be a forbearance. Credit card forbearances are provided by credit card issuers in order to help push off debt payments until a time when it’s easier for the borrower. 

Some examples would be pausing monthly bill payments for an agreed upon amount of time, lowering minimum payment amounts, waiving late fees and lowering interest rates. The debt would still exist but in the short term it would become much more manageable.

Negotiate Debt Consolidation

When juggling multiple credit cards one of the best options is to roll them up together into one more manageable debt with the intention to have a lower interest rate as well. The idea here is to either take out a new line of credit or take out a personal loan and pay the cards off using the new card or loan. From there it would just be the new card or loan to be paid off instead of having several different lines with varying interest rates and minimum payments due monthly. 

For example, let’s say you have 3 credit cards open and owe $500 with an interest rate of 25%, $1000 with an interest rate of 28%, and $2000 with an interest rate of 10%. Only being to afford the minimum payments means the $3500 total will take longer to pay off because of the interest. 

With consolidation, you would open a new credit card account and pay off the other cards with it. The balance owed is still the original $3500 but depending on interest rate would be much less than having the 3 cards open. Plus, the monthly minimum payments on three cards would be more expensive than the minimum payment for just one card. 

This would go a long way to saving money in the short term albeit at the expense of lengthening the time to pay off the total amount of debt.

Negotiate Debt Settlement for Credit Cards

This option requires bringing in an outside company to help negotiate down the credit card debt into a settlement, or a lump sum payment, that would be smaller than the outstanding debt balance. 

In this particular arrangement, the borrower would pay the debt settlement company a monthly payment, which is placed into an account. Once the company reaches a settlement with the creditor, those funds will be removed, alongside the settlement company’s fee, and deposited to the creditor, therefore paying off the debt. 

While there are some obvious pros to this option, such as lowering the overall debt and avoiding bankruptcy, there are a few cons as well. If creditors do not agree to negotiate the debt then the borrower may actually end up more in debt when the interest and late fees are factored in. Credit scores can also be severely negatively affected using this method. Read our full guide to find out if debt settlement is worth it for your person situation.

Hardship and Forgiveness

Although a bit of a longshot, asking for financial hardship or forgiveness is still possible. This will take more effort to negotiate credit card debt down, but can be worth it in the long term.

Similar to a forbearance being placed, a hardship plan helps to lower minimum payments, interest rates and late fees. 

Meanwhile debt forgiveness is exactly what it sounds like, and parts, or sometimes all, of a debt are forgiven and closed. 

Obviously, these options are much less likely than the others but they are something to keep in mind if attempting to negotiate debt down. 

One potential downside to debt forgiveness is forgiven debt is considered taxable income so even if the debt is reduced all the way to $0 it would still cost the borrower money in the form of taxes.

Negotiate a Lump-Sum Payment for Credit Card Debt

This option basically boils down to making a one time payment of an agreed upon percentage of the principal debt instead of the entire debt over the course of months of years. This option is more difficult to achieve through negotiations and would require a rather large amount of money up front in order to pay off the debt. 

Bankruptcy for Credit Card Debt

Obviously this choice would be the least preferable one but depending on the situation it may be the best solution. Filing for Chapter 7 bankruptcy erases almost all credit card debt, so depending on how much is owed versus how much you can afford to pay, it may be the best choice. 

Paying the minimum amount each month on a card with a high interest rate could mean years or even decades to pay it off. Plus if a payment is missed then the interest rate could be raised and late fees can be tacked on as well. 

While this would eliminate credit card debt, along with other unsecured debts such as utility bills or medical bills, this option should only be chosen when there are no clear alternatives and all other options have been exercised.

4 Best Steps For How to Negotiate Credit Card Debt

  1. The first step to effectively negotiating credit card debt is to confirm the exact amount owed. How many credit lines are open? How much is the total debt? What are the interest rates? Depending on the situation it may be multiple cards with multiple card issuers so any and all information is necessary.
  2. Review all the options available based on the information gathered in step one. For short term issues, a forbearance may be the best choice. Multiple cards with differing interest rates? Consolidation can help fix that. Long term issues that cannot be resolved reasonably? Hardship programs or debt settlements would be the ideal path forward. It’s important to choose the best option based on the specific details of the debts owed.
  3. Now it’s time to call the credit card issuer and begin the process of negotiating. It’s important to keep in mind that the credit card issuer is trying to get the maximum amount of money, so be polite in negotiating but also firm. Outline the terms you would think are best for you and most fair to them and they will respond with their counter offer. It will continue from there until an agreement is made. It’s also a wise decision to record the conversation if possible or at least take very detailed notes during the talks.
  4. After an agreement is made it is critical to get whatever it is put in writing. Verbal agreements ultimately aren’t anywhere near as good as a written and signed agreement.

Negotiate Credit Card Debt Today

When pursuing credit card debt negotiations you need to get all your ducks in a row and make sure you have all the details on your debts. Having a plan of action, before calling your creditors to negotiate is also key when speaking with credit card companies to settle your debt.

With all of these options negotiating credit card debt is very possible to achieve. Some people are able to do it all by themselves while some others enlist the help of credit counselors. 

Ultimately, negotiating credit card debt isn’t nearly as scary or intimidating as it may sound. It’s possible with enough thought and research before negotiating, and bankruptcy may never even come up as an option to eliminate credit card debt if you play your cards right!

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