How to Negotiate Your Credit Card Debt

Credit card debt is a common challenge, which means there are a lot of tools out there for overcoming it. You have options for credit card debt relief that can make it easier to handle and get you back on track.

One option may be to negotiate your credit card debt with your card issuers. Read on to learn more about the process and who should negotiate their debt.

Can You Negotiate with Your Credit Card Company? 

Yes, you can absolutely negotiate with your credit card company. 

Results vary, but you could potentially negotiate anything from a lower interest rate and waived late fees to partial debt forgiveness. Any of these credit card debt solutions could make your debt easier to afford and hopefully get you debt-free much faster.

Most card issuers have entire departments staffed with people to help customers manage their payments. They don’t tend to advertise options that are available to people who are struggling with payments. These departments may be called “workout,” “loss mitigation,” “collections,” or something similar. You can contact the right people by calling the toll-free number on the back of your credit card and explaining that you need help affording your bill. 

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Why DIY Debt Settlement May Be Right for You

While there are many sources of professional debt settlement help, there's no law that says you can't negotiate your own debt. And certain types of people can absolutely pull off a DIY debt settlement, especially if they are untroubled by financial negotiations. People who want complete control over the process will also be more comfortable negotiating themselves rather than turning their business over to a pro. And of course, DIY settlement saves you debt settlement fees. 

You may not want to settle debt yourself, though, if you have many debts to negotiate, or you find the process intimidating, or you're already being sued for a debt, or you don't have immediate access to money for a settlement. The process can take several years in that case, and you may not have the stomach for it without professional help.  

Debt settlement can be more DIY-friendly if you have already saved or borrowed a lump sum to offer your creditors, if you can easily prove that you have a debt-related hardship, or if you only have one or two accounts to negotiate. It's important to note that many creditors have a relationship with larger debt settlement companies, and this can make the process smoother and more predictable. However, some creditors prefer to negotiate directly with consumers. 

In any event, you certainly can contact your creditors and attempt to settle with them. If it doesn't go well, you can hire a professional to assume the burden. 

Types of Credit Card Debt Agreements

The outcome of your negotiation will depend on a lot of variables, including:

• Your current debts

• Whether you're current or behind on payments

• How much you can afford to repay

• The nature of your hardship

Once you explain and document your situation with your credit card company, you may be offered one or more of these common types of credit card debt agreements.

Understanding Your Financial Hardship

Financial hardship is anything that prevents you from being able to afford to repay your debts as agreed. This could involve a reduction in income, an increase in expenses, or both. Here's a list of common hardships:

• Layoff at work

• Death of a family wage-earner

• Reduction in hours at work

• Crime

• Natural disaster

• Divorce

• Accident or serious illness

• Caring for a sick child or aging parent

Contact your card issuer, explain what happened, and supply proof of your hardship to see if you qualify for help. 

When documenting your hardship, you might need to show that it wasn't your fault. Being caught in a mass layoff is one thing. Making a bad investment or overspending is understandable. Getting fired for stealing from your employer is something else. For maximum leverage in a debt negotiation, then, it helps to thoroughly make your case and to not be 100% at fault. 

A hardship letter should explain the change in your situation—what happened and exactly how much less you're earning or how much your expenses have increased. You can also explain what it would take for you to be able to afford your debt. Here are some common documents people use to prove different hardships:

• Accident or crime report

• Medical bills

• Divorce decree

• Bank statements

• Death certificate

• Employer termination letter

• Unemployment benefit 

• Application for disability benefits

For example, if you experienced an accident, you might provide a police report, medical bills, a statement from your employer concerning your leave of absence, and a letter from your doctor noting how long it will take you to recover. 

Hardship plan

A credit card hardship plan is a temporary relief program (typically a few weeks to 12 months) that some credit card companies offer to borrowers who are experiencing short-term financial difficulties. Depending on the issuer, a credit card hardship plan may allow you to:

• Pause payments or make lower payments for a specified period

• Temporarily reduce your annual percentage rate (APR)

• Waive late fees

• Pay off your balance through an installment plan

Hardship plan eligibility depends on your circumstances and often hinges on issues over which you have no control. 

Examples of possible qualifying hardships include:

• A cut in pay or hours at work

• Job loss

• Serious illness

• Family emergency

• Death of primary breadwinner

• Natural disaster

• Divorce

A hardship plan offers temporary relief when you can’t afford your payments, but it typically doesn’t lower the amount of your debt. Hardship plans can be useful if you don't need extensive or long-term help and will be able to resume your payments in a few weeks or months. However, they can also leave you worse off if you're not prepared for their rules. Before entering a hardship program, determine if its duration is long enough to help you recover, if you can afford the payments, what happens if you miss a payment, how it will be reported to credit bureaus and if your account will be frozen or closed.

Workout agreement

A workout agreement generally means renegotiating the terms of an account that's in default or to avoid a default. Workout agreements can be useful when you’re still able to make payments but penalty interest rates, late fees, and other charges are burying you. Workout agreements may be in force for years or until your balance has been repaid.

With a workout agreement, your credit card company may waive late fees, reduce your interest rate, and/or lower your monthly payment. Expect your card issuer to freeze your credit line while you’re in a workout plan, which will probably affect your credit score. Your account may be brought to current status so you can resume paying without worrying about catching up past-due amounts at the same time.

A workout agreement could help you reset and pay your balance down over time. However, if you violate the terms of your new agreement, the issuer may cancel the plan. In that case, your credit card’s regular terms including penalty interest and late fees may kick back in. 

As with a hardship program, it's important to know the rules of any workout agreement proposed by your credit card issuer, and to make sure that you can afford the payments. If you can't afford the terms of an arrangement, indicate why and keep negotiating. A bad agreement might be worse than no agreement if you ultimately fail to repay your account. 

Forbearance

A credit card forbearance is a temporary payment pause (generally less than 12 months). If you expect your financial problems to be short-lived—for instance, you lost a job but expect to find another one soon—a forbearance may be all you need to get back on track. Forbearance doesn't generally damage your credit score if you request it and get approved before you start missing payments. 

Even though your required payment might be zero during forbearance, your balance will probably grow as your account continues to rack up interest charges. It’s rare to have interest charges waived during a forbearance. Be sure that you understand the terms of your forbearance and plan to make up the missed payments once the relief period ends.

Lump-sum settlement

Lump-sum debt settlement means negotiating a single reduced payment as full and final payment on the debt. The creditor accepts the lesser amount and forgives the rest of your debt. Debt settlement is a serious solution for long-term or permanent financial problems. 

To pull off a lump-sum settlement, you’ll need to come up with money to offer your creditor(s). There are a few possible ways to make this happen:

• Tap your emergency savings

• Borrow against your 401(k)

• Take a hardship withdrawal from your retirement account

• Get help from friends or family

• Sell items you don’t need

• Save over time by skipping debt payments and putting that money into a special savings account instead. If you opt for this strategy, your credit will suffer.

The advantage of a lump-sum settlement is that your debt goes away as soon as it’s settled. Many clients of professional debt settlement companies settle their first debt within six months. However, it may take years to settle many debts one by one if you first have to save the money to offer. You can also expect significant damage to your credit score if you skip your payments, and you may owe taxes on the amounts forgiven. 

When you negotiate a debt settlement, how much debt can you get forgiven? It depends on the creditor, the age of the debt, your situation, and possibly your negotiating skills. Your credit card company (or any other creditor) is not required to negotiate or settle with you at all, and there is no guarantee that it will. 

Negotiate Your Credit Card Debt Yourself in 3 Steps

Should you negotiate your credit card debt yourself? It can’t hurt to try because you can always consult a professional if your first attempt doesn’t work. Here are three simple steps to try before bringing in a pro.

Step 1: Compile information

You’ll want the answers to a few questions before you contact your credit card company:

• What is my monthly income, before and after taxes?

• What are my necessary monthly costs like housing, car payments, food and transportation?

• What’s left over for credit card debt payment?

• Is my situation temporary, long-term, or permanent?

Your credit card issuer will want to know the cause of your problem. Explain it in a letter or on the form they provide, and submit documents to prove your hardship—for instance, medical bills, unemployment notices, etc. 

You'll want to pull a credit report to see what balances and payments are in your credit file, to make sure your records are accurate and so you don't forget anything. You can get a report for free from the government's site annualcreditreport.com. Equifax and Experian also provide free reports. 

A simple way to compile hardship information is to take a picture of every document as it comes in with your phone and organize them by type—income, expenses, medical forms, employment notices, letters, whatever proves what you're trying to prove. You want to clearly answer these questions: What caused your hardship? What were your income and costs before the hardship? What are they now? What's the difference per month? What do you need to happen?

Here's a sample list of expense details that might be required by a workout department. Use this list to determine your expenses and budget your repayment.

Expect to also provide a list of your financial obligations—loan balances, interest rates, minimum payments, and due dates. 

Step 2: Run the numbers

Once you have a complete picture of your income, debts, and resources, you need to determine what you can afford to pay and what you want from your credit card company.

How do you know what you can afford to pay? Look at the information you listed in Step 1. Start with your take-home pay and subtract the necessities like food, shelter, transportation, loan payments, and child care. 

Next, tackle optional expenses and look for opportunities to cut back or cut out things like streaming packages, restaurant meals, and hobbies. Look at your new, leaner budget and see what’s left. You can use that amount for monthly credit card payments or save it up to settle your debt.

What if you can’t afford to pay much—or anything? That’s good to know because you won’t get yourself into deeper trouble trying to make an unaffordable solution work. 

Step 3: Contact your credit card company

Once you can explain your hardship and the help you need, contact your credit card company. This first call might tell you how generous the card issuer will be and how difficult or easy it'll be to work out a solution. 

• Have a notebook in front of you with all of your information.

• Know what you want to pay—whether lump sum or monthly payment—and stick with that figure. Back up your reasoning with your numbers.

• Be calm and polite.

• If you're a long-time customer with a good track record, mention this fact.

• Make notes during the call and get the name and title of everyone you speak to.

• Get any agreement in writing.

• Find out how your arrangement will be reported to credit bureaus.

• Once you have a written and signed agreement, you can arrange for payment.

Don’t be afraid to politely end the conversation without an agreement and try again after a few weeks. Creditors want their money, so sometimes they play hardball. Negotiation could take a few rounds.

Once you have an agreement, it’s crucial that you stick with your plan and its terms. Or you could end up worse off and deeper in debt. 

When to Consider Debt Settlement vs. Other Options

Debt settlement isn't something you choose lightly. If your credit is okay and you just received a pink slip, don't lose your mind. You might be fine with a short-term forbearance or hardship plan while you look for a new job. And if—happy day—that happens quickly, you won't have torched your credit rating for nothing. You might, however, want to consolidate expensive credit card accounts and pay them off. That will leave you in a stronger position if things get iffy in the future.

And if your problem is a long-term thing like a divorce or expensive illness? You may be able to make it work with debt consolidation or by renegotiating your accounts. Perhaps to a low- or no-interest plan with more time to clear your balances. A workout may be all it takes for you to climb out of that hole. Alternatively, if you qualify, non-profit credit counseling and an affordable debt management plan (DMP) could get you on track with minimal credit damage.

On the other hand, you may have been fighting to keep your head above water for a long, long time. Your accounts might be at least 90 days past due. Your creditors are certainly worried and have probably been trying to reach you. There might even be the threat of a lawsuit. This may be the right time to consider debt settlement and get a pro to help you with damage control.

And then there are catastrophic, obvious problems. If you can show your creditors that you can't possibly afford the necessities while honoring your obligation to them (as much as you'd like to), you're in a good negotiating position. If, for instance, your new disability is forcing you to retire early on one-third of your former salary, that's simple math that going six months without paying your credit card minimums won't change. You may be able to approach your creditors early and resolve your debt quickly and privately. 

Looking for debt relief in Kansas City, MO or across the country? The first step is the most important one—learn more.

Can You Negotiate with Debt Collectors and Debt Buyers? 

What happens if your credit card company sends your account to a collection agency or sells it to a debt buyer? Can you still negotiate a payment plan or settlement?

Possibly. Many debt buyers pay pennies on the dollar, so they could be willing to accept less than the full amount you owe since they'll still make a profit. Before you even start negotiations, however, you need to verify the debt.

Always verify you owe a debt before starting negotiations

If contacted by a bill collector or debt buyer, make sure that you owe the debt and that they are authorized to collect it. You can do this by requesting a debt validation letter proving that you owe the money. Debt collectors are supposed to send you this debt validation letter (also called a debt validation notice) within 5 days of contacting you for the first time. Some will send it to you upfront, immediately, without being asked. But you can request one if you haven’t received it yet. 

The debt validation letter should state how much you owe and the name of the original creditor. After receiving the debt validation letter, you have the right to respond in writing within the next 30 days to ask for additional information like the date of your last payment, or dispute the debt if you believe the debt validation letter is incorrect. When you properly dispute a debt, the collector can't pursue you for payment until it investigates and verifies the account. 

Do your disputing sooner rather than later—if you miss that 30-day deadline, debt collectors are allowed by law to assume that you in fact owe the money. And that means they can start or resume collection efforts, which can include reporting you to credit bureaus, filing lawsuits and contacting you through many channels. If you dispute the debt after 30 days, the collector still has to investigate your claim, but it's allowed to keep trying to collect while doing so. This could make things uncomfortable for you. 

Can you stop creditors and debt collectors from contacting you? It depends. Federal law requires debt collectors to stop contacting you once you ask them to do so. But the Federal Debt Collection Practices Act, which governs debt collectors, doesn't apply to original creditors, like your bank or credit card issuer. They may choose to leave you alone if you ask them to, or if you live in a state that requires them to. Or they might be able to continue pursuing you for repayment. What about debt buyers? That depends on how they conduct their business as a whole. If they spend most of their time collecting debts, they're debt collectors. If they mostly buy debts and then collect for themselves, they may be treated as original creditors. 

In any case, don’t admit to any debt or offer any money until/unless you're certain that it’s yours. Once you know that you owe the money, you can proceed to negotiate the payment or settlement you need.

Building Your Settlement Offer Strategy

Before contacting creditors about settling your debts, you'll want to determine how strong your position is.  Ask yourself:

• How old is the debt? Older debts generally settle for less, especially if they're nearly time-barred.

• Who is owed? Debt buyers who have paid pennies on the dollar for your account are generally willing to accept less than an original creditor that's still trying to collect an active balance.

• How good is your story? And your proof? If you have no control over your hardship and provide ample documentation, your negotiating position is stronger. 

• How long past due is the account? Many creditors won't entertain a settlement offer until you're 90 to 180 days past due. 

• What do you have to offer? A lump sum, or a series of payments? Expect companies to want a higher percentage of what you owe if you're offering payments instead of upfront cash.

• Are you likely to owe tax on forgiven amounts? If you're not insolvent, you'll need to include taxes owed as part of your total cost. 

• How good is your credit? If your hardship has already compromised your credit scores, you have less to lose by allowing debt to go into default. And declining credit is also evidence of your hardship and that you can't afford your debt. 

Once you determine what you can afford to pay, offer less than that. Write down what you plan to offer as an opening move, and what you can't exceed. 

Tips to Negotiate Your Credit Card Debt Successfully

Negotiating with your credit card issuers will probably take some time and effort—and perseverance. Here are a few tips for a successful negotiation:

• Be prepared. Have all the documents you may need at hand during the negotiation so you are ready for whatever creditors may ask. This might include your latest credit card statements, pay stubs, or supporting documents to prove financial hardship.

• Know what you can afford. Whether you're looking to lower your monthly payment or settle your debt entirely, go into negotiations with a firm number in mind so you don't wind up with payments you still can't afford.

• Keep a record of everything. File copies of documents you send and receive, make notes of phone calls, and get any new terms in writing so everyone is on the same page. 

• Never, ever send money before you have an agreement in writing. The agreement should cover what you'll pay, when you'll pay, how the settlement will be reported to credit bureaus, and note that this payment will completely discharge your obligation to the creditor and clear your balance. 

• Settled accounts should be reported to credit bureaus with zero balances and a notation that it was settled for less than the full balance or something similar. The Fair Credit Reporting Act requires credit card companies and other creditors to report accurately, so they can't say an account was paid as agreed or paid in full if it wasn't. 

• Debt collectors or debt buyers may be more flexible about how a settled debt is reported because they want you to pay up and they may not have paid much for the debt in the first place. However, a "pay for delete" scheme is technically shady, and while some may agree to it, few will put it in writing (paying for deletion violates the FCRA) or actually follow through. 

• Stay calm and polite. The person on the other end of the line is another human just doing their job. Yelling, cursing, or otherwise losing your cool isn't going to help your case. In fact, it'll likely hurt it. So stay polite and respectful in all of your communications.

• Have patience. Negotiation can take time, especially more complex situations like debt settlement. Nothing is going to be fixed overnight, so don't get frustrated if things aren't moving as fast as you want.

• Some creditors have strict policies against settling debt or may only consider settlement as a last resort. You may have to show them that suing you will just cost them more because you don't have the ability to pay what you owe. If you're considering bankruptcy, you may want to let your creditors know, because that may motivate them to work with you. And if you can afford to increase your offer, you may have to. 

How Freedom Debt Relief Negotiates Your Credit Card Debt

If negotiating with your creditors is unpleasant, overwhelming, or too time-consuming, or if your attempt at DIY settlement is unsuccessful, you might want to hire a professional debt negotiator. Freedom Debt Relief’s Certified Debt Consultants are experienced in credit card debt negotiation and accustomed to dealing with most large credit card issuers. Also, we already have relationships with most creditors.

Your Debt Consultant helps you determine an affordable plan and works to reach a payment arrangement. Reputable debt settlement companies like Freedom Debt Relief will never ask for fees upfront, and you only owe debt settlement costs after you reach a satisfactory arrangement and settle an account.