Best Way to Negotiate Credit Card Debt
Credit cards can be quite a hassle sometimes. Yet, they’re handy whenever you need quick cash for an emergency. They’re risky if you get too many “emergencies”, though!
Did your favorite store put discounts on all its products? Perhaps you can earn more credit card points if you shop at a particular store? It doesn’t matter; they’re all “emergencies”!
That’s when you keep on swiping for all the best deals. Nowadays, it’s a lot easier to fall for them as most people shop online. Before you notice, you’ve maxed out all your credit cards.
Take a closer look, and you’ll see that you can’t handle the debt burden you’ve accumulated. You realize that you will need to do credit card debt negotiation.
It turns out that this is a careful balancing act between receiving debt relief and maintaining credit scores. You will have to make sure you get a favorable result.
Contrary to popular belief, creditors are used to requests for credit card debt negotiations. Fortunately, you have many ways to negotiate your unpaid balances.
That way, you can maintain good personal finance and avoid the poor house! Here are three ways to negotiate credit card debts:
- Talk to your lenders by yourself.
- Ask for help from a debt settlement company.
- Go through credit counseling.
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#1. Talk to your lenders by yourself
A lot of people can’t meet their debt obligations because of the coronavirus lockdowns. Countries closed their borders and enforced COVID guidelines to control the spread of the virus.
Unfortunately, that came at the expense of millions of people who have lost their jobs and businesses. This leaves them with no means of paying credit card debt.
The United States consumer debt so much due to the pandemic. According to Statista, consumer credit reached $15.24 trillion by the third quarter of 2021.
Credit card companies know this, so they’ve been willing to work with clients during this time. This means your lenders may adjust the credit card debt conditions to help you pay them off.
After all, you probably got your credit card from a bank. These financial institutions always make it a point to provide great service. They wouldn’t waste your time and money with this.
However, you will have to make sure you won’t do the same with them. Plan the details of your credit card negotiation, so you can raise the chances of closing a deal.
Analyze your debt
Gather all the recent documents that are connected to your unpaid credit card balances. This means putting all the receipts in one place. Use those to get an overview of your debts.
After that, look at your current income and expenses. Get the total of your expenses and debt payments every month, then deduct this from your monthly earnings.
Is there any money left, or are you now a few digits deep in the red? See how you can have more money every month. The most immediate action is to reduce your spending.
Compute how much money you may save if you remove off a few expenses. Keep doing this until you figure out the mix of expenses and income that leaves more for debt payoff.
This will help you with the negotiation process. Having an idea of how much you could submit for debt payments lets you make a deal that’s good for you and your lender.
Check your card’s terms and conditions
Negotiating credit card debt can have one of two goals: reduce regular payments or delay them entirely. Also known as forbearance, this might be the hardest to get from your lender.
Before you can talk to your creditors about those, you will need to check the terms and conditions of your card. Specifically, look for the part about negotiating credit card balances.
You could make this easier by looking at the bank’s website. It may even have customer service representatives who can guide you. See the possible consequences of negotiation.
Remember that your lender will have to check your credit information. If he does a hard credit check, then you may receive deductions to your credit rating.
Know the types of credit card debt settlement
After reviewing your credit card terms, learn how your debt settlement may turn out. Credit card companies may agree on the following types:
- Lump-sum agreement – The company may relieve you of your debt obligations if you pay an amount that’s less than your current total balance.
- Workout agreement – As I said, a bank could reduce your monthly payments by giving you a lower interest rate. Sometimes, it may pause charging interest or close your account for a certain period.
- Hardship agreement – While negotiating credit card debt, your lender may realize that you’re going through various difficulties in debt payment. If you have a valid reason such as losing your job, your lender may give you debt conditions that are more lenient than before.
Set a meeting with your lender
Now, it’s time to speak with your creditors face-to-face. Set up an appointment using the bank’s website. It will likely have an automated chat option that will guide you.
You might want to insist on speaking with a customer service representative. The agent will likely understand your concerns faster, especially if you have needs that aren’t in the chat options.
Just make sure that you will be able to attend the appointed time and date. You might find it harder to make another appointment if you’re late for the previous one.
Be punctual and professional
You might have noticed that I’ve mentioned being punctual for the second time. That’s because a negotiation involves meeting you and the other party’s demands.
Your punctuality is your lender’s first term before you even start negotiating credit card debt. They left that period for you, so you must fulfill your end of the bargain by being on time.
Otherwise, you would be starting the negotiation on the wrong foot. Once you’re face-to-face with your lender, speak calmly about your current financial situation.
Make sure to bring all documents that may help persuade the creditor, such as your pink slip from your old job. Once they present an offer, see if you can get a better counteroffer.
The planning you did prior to this meeting should help you. What’s more, make sure you have everything on writing. Ask for a printed copy of your agreement once you close a deal.
#2. Ask for help from a debt settlement company.
Did you know that there are companies that specialize in negotiating credit card debts? These firms offer debt settlement services to their client.
In other words, they help you pay less than what you originally owed. The usual debt settlement program works by following these steps:
- Debt settlement companies analyze their client’s finances. This means looking at the outstanding balances, your earnings, and other relevant information.
- After checking that data, the firm will figure out how low they might reduce your debt. They will show you the amount they come up with afterward.
- Once you approve the amount, you must sign an agreement with the company.
- Then, its representatives will start negotiating credit card debt with your lenders. Meanwhile, you will have to divert your credit card payments to an escrow account.
- If the representatives close a deal with the credit card company, the escrow funds will serve as a lump sum payment.
Did you notice that the last step doesn’t guarantee success? That’s because credit card issuers can decline offers from credit card negotiations. This is a major issue with debt settlement companies.
If yours fails, that could spell more trouble for your finances than before. After all, that would mean that you’ve been putting off monthly payments without any positive results.
Your credit card debt has probably ballooned because of those late fees, interest rates, and other penalties. Unfortunately, debt settlement agencies don’t cover missed payments.
Let’s say you succeed in paying down your debt. That still leaves you with a few problems. You may not have to pay late fees, but the settlement agency will charge different ones.
The IRS will also tax you if your settled debt goes beyond $600. That’s when it counts as taxable income that you will have to report in your next tax return.
Whether you succeed or not, debt settlement will also reduce your credit score temporarily. If this option has this many downsides, then why do people still choose it?
That’s because this might be the last resort for people struggling to negotiate with credit card companies. If this doesn’t work, they’re likely to face bankruptcy.
#3. Go through credit counseling.
If you want a relatively safer option than debt settlement, you may want to try credit counseling. Instead of reducing the amount you owe, it could make your debt payoff easier.
Start by heading to a credit counseling agency. That’s where you can set an appointment with their credit counselors. Before you meet them, you will have to prepare certain documents.
You must provide information that’s relevant to your debt issues. Once the meeting starts, speak to the counselor about your credit card debts. He will help you make a debt management plan.
This could help you reduce your required monthly payment, usually by lowering the interest rate. In turn, you may find it easier to meet your debt obligations.
What makes this different from debt settlement?
Credit counseling may seem similar to a settlement because it involves negotiating credit card debt. Still, the former has various distinct features.
This doesn’t help you pay less for your unpaid balances. Instead, credit counseling agencies provide debt management plans that reduce your monthly payments.
In turn, you may need more months to pay off your credit card balances. Still, this can be a great option for those who are finding it hard to meet their debt obligations.
What are some issues with debt management plans?
Credit counselors can also negotiate credit card debt with lenders. Instead of lowering your outstanding balance, they let you pay less every month.
Similar to debt settlement, credit card companies may decline such offers from credit counseling firms. In other words, there’s no guarantee that this will work.
It’s up to the client to follow their debt management plan to a tee. It can be difficult because DMPs usually have strict rules. For example, some of them limit you to one credit line.
You won’t be able to open a new account from any credit card company while the DMP is active. This may put you in a tough spot if you needed extra cash for emergencies.
Should I use credit counseling?
This might be a good option if you’re still in good financial standing. This means you have a stable job, and you just need an easier way to beat your debts.
Credit counseling may not be ideal for serious financial problems. The lower monthly payments may not be helpful if you have too many debts and too little income.
Still, it’s best to consult a financial advisor on what to do. Such a professional can show you the methods that are most likely to help you reach financial freedom.
You might also request assistance from an in-house help program or loss mitigation. Use the following steps to see if you qualify:
- Choose the debt amount below that matches your current balance.
- Answer a few questions and join thousands of Americans on the path to becoming debt-free.
Other ways to get rid of credit card debt
The ultimate goal of negotiating credit card debt is to pay it off much easier. Lowering the monthly payments and reducing the total amount you owe are just some ways to do it.
That’s why you shouldn’t confine yourself to the three methods we’ve discussed. Aside from speaking with the credit card company, you might want to apply for debt consolidation instead.
Your bank may let you consolidate credit card debt into one that has a lower interest rate than your average credit card balance. This means you will only have to handle one unpaid balance instead of several.
You will also pay a lower amount every month. What’s more, you may take things further by applying for a balance transfer credit card. It offers various benefits for debt consolidation.
Its main feature is the introductory period that offers zero interest. During a few months after the card’s activation, it will charge a 0% interest rate, letting you reduce the principal directly.
If you have extra funds, you might want to pay more than the minimum monthly payment. In turn, you may get rid of your debt obligations sooner.
You may create a debt management strategy yourself. The usual methods are the debt snowball and the debt avalanche. The former involves paying the smallest amount first.
This lets you get rid of balances sooner, so you may feel encouraged to keep going. The debt snowball is a good choice if you’re having trouble sticking to a debt payoff plan.
Unfortunately, this method takes the longer path to financial freedom than the debt avalanche. This involves paying the biggest unpaid balances instead.
The downside is that you will take longer to see just one balance complete. Some may get frustrated by the lack of progress and quit. Your choice depends on your preferences.
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Negotiating credit card debt can be tricky, especially if you do it yourself. Fortunately, credit counseling and debt settlement may facilitate your debt payoff.
Note that both of these methods have their disadvantages. Your goal is not to pick the perfect solution but the one that is the best fit for your financial situation.
It’s best to pay credit card debts on time to maintain a good credit score. Find out how to improve your rating by clicking here.
Published February 11, 2019; UPDATED March 1, 2022.