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Negotiating Credit Card Debt: How to Negotiate Debt With Credit Card Companies

Negotiating Credit Card Debt: How to Negotiate Debt With Credit Card Companies
Jason Steele
Jason SteeleUpdated January 19, 2022
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When you have enough credit card debt that you’re having trouble making your payments, it may be time to consider negotiating your debt with your credit card issuer. Credit card issuers may be willing to negotiate your debt to retain you as a customer, and to prevent you from having to declare bankruptcy. Read on to learn how you may be able to negotiate credit card debt and when it could make sense.

What Is Credit Card Debt?

When you make a purchase with a credit card, you are taking out a loan from a line of credit. According to the credit card terms that you received with your card, you agree to pay back that loan with regular monthly payments. Once you’ve made a charge to your account, it’s considered debt, even if you intend to avoid interest by paying it back in full. As unsecured debt, credit cards tend to have higher interest rates than other forms of debt that are secured by property such as a home or a car. As of August 2021, which are the most recent statistics available as of this writing, the average credit card has an interest rate of 14.54% APR, while the average rate is 17.13% APR for those accounts that have been assessed interest. In contrast, a 60-month new car loan has an average interest rate of 4.60% APR, and available home mortgage rates are even lower.

In What Cases Does It Make Sense to Negotiate Debt?

It can be a good idea to negotiate your credit card debt when you’re unable to make your credit card’s minimum monthly payments while still being able to afford your basic living expenses. Attempting to negotiate your debt also makes sense after you’ve done everything you can to maximize your available cash, such as working extra hours or selling unneeded items around the house.It’s also worth trying to negotiate your credit card debt before pursuing bankruptcy options. While your credit card debt may be discharged in bankruptcy, your credit history and credit score will suffer severely for many years. The only credit cards you will be able to qualify for, for some time, will be cards for repairing credit history and eventually fair credit cards.

Why Do Credit Card Companies Negotiate Debt?

Many people wonder, “Can you negotiate credit card debt?” But, what makes credit card debt different from other kinds of debt is that it’s unsecured. Unlike a home mortgage or a vehicle loan, there’s nothing for the credit card issuer to foreclose on or repossess if the cardholder fails to repay the loan. Since card issuers can’t threaten to repossess your purchases, their only remaining option can be to negotiate a lower repayment amount, which is called credit card debt settlement. If the credit card company feels that you may not pay the loan back, its next best option might be to forgive some interest and fees, or to accept a smaller amount of the principal, rather than have the account go into default, and possibly see the entire debt discharged in a bankruptcy proceeding.

How Does Credit Card Settlement Work?

Whether you want to know how to negotiate credit card settlement on your own or with a debt settlement company, you’ll have to take the same steps to begin the credit card settlement process. First, you’ll need to total up how much you owe on all of your credit cards. This shouldn’t be hard if you know how to read a credit card statement.Then, you’ll need to decide if you know how to negotiate credit card debt settlement yourself or if you’d rather negotiate settlement with a credit card company through a debt settlement service. Just be aware that there are numerous companies out there that purport to offer debt settlement services that are little more than scams. These include companies that charge fees upfront or guarantee that it can just make your debt go away. Next, either you or the debt settlement company will contact the card issuer or issuers that you owe money to and attempt to negotiate the debt down to an amount that you’ll be able to reliably make payments on. Once you’ve reached an agreement, you’ll want to put the agreement in writing. It will also be important to make all future payments on time, or risk voiding the agreement. 

What Are the Types of Credit Card Debt Settlements?

There are several different types of debt settlement agreements that are commonly offered. Each one has its advantages and drawbacks. 

Lump Sum Agreements

Lump sum settlements can allow you to make a single payout in order for you to settle your outstanding debt, rather than commit to an extended payoff plan. The idea behind a lump sum agreement is that the card issuer agrees to settle for an amount that’s less than what you currently owe, and to forgive the remaining balance. The cardholder then pays off that amount in a single payment.Just be aware that when you agree to a lump sum agreement, the creditor can add a notation in your credit history that the account is “settled,” which can hurt your credit score. The card issuer may also decide to close your account. You may also need to report the forgiven debt as income on your next tax return and possibly pay taxes on that amount.

Workout Agreements

With a workout agreement, you negotiate with the card issuer to reduce your interest rate or waive interest charges. It’s also possible that the card issuer might be willing to reduce your monthly payment or waive past late fees that you’ve incurred. One of the drawbacks of a workout agreement is that the card issuer may close your account as part of the agreement. Any time you close your credit card account, you’ll reduce the total amount of credit that you’ve been extended. This will increase your debt-to-credit ratio for a given amount of debt, which could potentially hurt your credit score. 

Hardship Agreements

Hardship agreements are designed to address temporary financial setbacks that are preventing you from making payments. These agreements are sometimes also referred to as forbearance. For example, if you’ve been the victim of a natural disaster or have had a serious medical condition, then you may be successful in negotiating a hardship agreement with your credit card issuers. Other reasons could be job loss or a death in the family. With these agreements, you may be able to negotiate a lower interest rate, have late fees waived or have your minimum payment temporarily lowered. You also may be able to have some of your payments deferred as you recover from temporary financial problems. However, having a hardship agreement can still impact your credit score, as the card issuer could still report missed payments to the major consumer credit bureaus during this time. 

Are There Alternatives to Negotiating Credit Card Debt?

Negotiating your credit card debt is an important decision that shouldn’t be taken lightly. Before you do so, you should exhaust all other reasonable options to continue making your payments on time.Another strategy to consider is a debt consolidation loan. This is when you apply for a new loan that you use to pay off your existing debts. Types of debt consolidation loans can include home equity loans and lines of credit, cash-out vehicle loans and 401(k) loans.Debt consolidation loans can offer you the advantage of paying fewer bills, or having just one payment that you need to make each month. You can also reduce the interest rate you’re paying and potentially your monthly payments as well. You can also consider personal loans and loans from friends and family members. And if your credit score is still good or excellent, you can look into credit cards with 0% APR balance transfer offers. These offers allow you to avoid interest charges for a limited time, often from 6 months to up to 15 or even 18 months. However, you can expect to pay a balance transfer fee of 3% or 5% with most cards, which you should keep in mind when choosing a credit cardBut if all of these strategies are unsuccessful, and you’re unable to make payments on your credit card debt while being able to afford your basic living expenses, then you may have to consult an attorney regarding your bankruptcy options.

The Takeaway

It can be extremely difficult to get out from underneath the burden of credit card debt, but there are many options. If you find yourself unable to maintain your credit card payments, then negotiating your credit card debt could be an option. By understanding both the benefits and risks of negotiating your credit card debt, you can make the best decisions for your financial situation. Before you get to that point, you might consider first attempting to find the right balance transfer credit card to get a handle on your debt. Lantern by SoFi can help you start your search for the right card for your situation with our credit card comparison tools.
Photo credit: iStock/Riska
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice. SOLC112197

About the Author

Jason Steele

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
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