How To Negotiate Your Credit Card Debt? [Updated 2023]

Want to know how to negotiate your credit card debt? Keep reading!

On average, Americans owe around $1 trillion in credit card bills, according to findings from Experian, so if you also have an insane amount of credit card debt and feel like you are never going to get rid of it, you are not alone.

Credit card debt can easily get ahead of you while wreaking havoc on your finances and credit scores, making you feel like it’s impossible to get out of this trap.

The good news is that most credit card issuers are often willing to negotiate the payment terms of your debt so they can get some of its money back.

In fact, according to Wallethub, Credit card companies may settle for a negotiated amount equal to roughly 40% to 60% of the balance owed.

In this article, we’ll discuss what credit card debt is, the types of credit card debt settlement plans, and how to negotiate it effectively is.

Let’s get started!

Key Takeaways

Credit card issuers are often willing to negotiate the payment terms of your debt.
Credit card companies offer several types of debt settlement plans.
You can choose Workout Agreement, Debt Management, Lump-sum Settlement, or Hardship Plan to deal with your credit card debt.

What Is Credit Card Debt?

Credit card debt refers to the accumulated outstanding balances that borrowers carry every month.

It is a type of revolving debt that you can continue borrowing as long as you are in a position to repay enough without exceeding your credit limit.

When credit card users fail to pay what they owe, the bank will charge interest on the borrowed amount or even sue, but the company will not come to seize Your assets. ¹

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How Does A Credit Card Settlement Work?

Credit card debt settlement lets you settle your credit card debt for less than what you owe. You can do this yourself by negotiating hardship options or negotiating a lower interest rate.

Another popular and effective way to do this is by doing the settlement via a third-party agency.

If you choose this route, then you will have to send payments to the agency and will also have to pay a service fee to them.

The benefit of credit card settlement is that you will be able to debt rid of the debt without paying the whole amount, but this will drop your credit score. Also, you might have to pay tax on the forgiven debt.

Types Of Credit Card Debt Settlement Plans

The good news is that most credit card issuers are often willing to negotiate the payment terms of your debt so they can get some of its money back.

Credit card companies are also open to negotiation to maintain long-term relationships with clients.

Credit card companies offer several types of debt settlement plans depending on the financial situation of the borrower.

The most common credit card debt settlement options are:

Workout Agreement

This agreement is made when your account gets defaulted. Your creditor provides you with easy repayment terms to pay down your debt.

It involves reducing the payment amount or interest rate and even the cancellation of the fees you pay while you are in repayment.

Debt Management

In the debt management plan, your credit counseling agency works with your creditor and comes up with a repayment plan in which you deposit money with the credit counseling agency which then uses your deposit to make monthly payments to your creditors.

Lump-sum Settlement

When credit card users fail to pay what they owe, the bank will charge interest on the borrowed amount or even sue, but the company will not come to seize Your assets.

Hardship Plan

This option involves lowering your credit card’s minimum payment, fees, and interest rate.

A hardship plan is suitable for people dealing with job loss or short-term financial hardship. However, by using this plan, your credit card issuer may suspend your credit card. ²

How To Negotiate The Credit Card Debt?

Negotiating with your credit card company seems daunting because most companies are unwilling to change their terms unless they are worried about you filing bankruptcy.

To improve your chances of settling the debt, here are steps you must follow while negotiating your credit card debt:

1. Assess Your Debt

Start by assessing how much credit card debt you owe. Make an itemized list of how much you owe on each card and the interest rate you are going to pay.

2. Explore your Options

Next, figure out what kind of deal you want to make with the credit card company, what debt settlement options are available, and how much you can afford to pay.

3. Consider the risks Involved

All debt settlement options have some downsides and may hurt your credit scores one way or the other, so it is important to be aware of the risks beforehand.

Also, keep in mind that your forgiven credit card debt is considered taxable income.

4. Contact Your Credit Card Issuer

Once you select the debt settlement option that makes sense for your circumstances, call your credit card company and speak to the relevant department’s customer representative. Explain your financial situation to them and politely make your offer.

5. Get Everything in Writing

Once you and the creditors agree to a settlement plan, make sure to get the agreement in writing that clearly explains your financial situation and the terms of the agreement. ³

Read: What Is Debt Validation Letter?

What Is The Impact Of Credit Card Debt Settlement On Your Credit Score?

While working with a debt settlement company, you may be asked to stop making payments towards your debt because of the ongoing negotiation.

Not making monthly payments will make your debt delinquent, which will lead the creditors to report this to the credit bureau.

Delinquencies stay on your credit report for 7 years, so that is one negative impact of credit card debt settlement.

This will also plummet your credit score, and a poor credit score may make it difficult for you to take loans in the future.

What Are The Alternatives To Credit Card Settlement?

Now that you know the negative impact of credit card debt settlement, you may be wondering if there are other ways to get around this.

The good thing is that you can take a different route to deal with this situation.

Here are a few alternatives to credit card settlement:

1. Debt Consolidation loan

If you owe multiple types of debt or multiple credit card debt, then you can take a debt consolidation loan and use the money to pay off all your previous debt.

You will now be left with only one single loan, towards which you will be making monthly payments.

Debt consolidation loans can be obtained for a lower interest rate than credit cards, given you have a good credit score.

The best part about this option is that because you do not have multiple loans anymore, you get to save interest on all of them.

2. Credit card balance transfer

Another option is that you can start looking for 0 percent APR balance transfer credit card.

The terms may vary based on the issuer and the offer, but you can find offers that last for 12-20 months.

Using this route, you can move your credit card balance and pay it off with zero APR charges.

However, you will most likely need to pay a minimum amount towards your old card even when you are not using it.

3. Reach out to a credit counselor

Sometimes there are ways and loopholes to keep making your monthly payments towards your debt, but you can’t see it.

You can reach out to credit counselors who are experts in such matters.

They might be able to help you come up with a plan or budget that will make it possible to keep paying off your debt.

A counselor assesses your financial situation and helps you develop a plan. The initial session may last for an hour or so.

4. Talk it out

If none of the above ways appeal to you, then you can always talk to the credit card company yourself.

Simply call them, explain your situation, do not lose your patience, and be persistent. Your goal should be to get them to reduce your interest rate or to get a modified payment plan.

5. Bankruptcy

Although declaring bankruptcy has serious consequences, experts say that it is not the worst option to opt for.

If you file for chapter 13 bankruptcy and have a steady income, then you will be allowed to keep your mortgaged property, unlike the Chapter 7 bankruptcy process.

In chapter 13 bankruptcy, the court allows you to repay your debt over the course of 3-5 years without taking away your property.

Once you make all your payments, your debts are discharged. ⁴

Wrapping Up

Credit card debt has been a rising cause of concern, and more and more people are finding themselves in credit card debt.

If you are one of them, then we hope this guide on how to negotiate your credit card debt was helpful to you.

FAQ’s

How To Research For Debt Settlement Companies?

While looking for a debt settlement company, you need to be very careful because you are going to spend a lot of money in hiring them.

Type in the name of the company followed by complaints and check if there are any registered complaints against it.

Check with your local consumer protection agency, read customer reviews online, and look for accreditations to make sure you are hiring a legit company.

What is the impact of credit card debt settlement on your taxes?

The IRS considers forgiven debt as income, and so they charge income tax on any kind of forgiven debt unless you are insolvent.

What is the amount that credit card companies usually settle for?

As per the American Fair Credit Council, credit card companies usually agree to settle for an average of 48% of the balance owed.

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Amit Gupta

Amit Gupta is the founder of National Planning Cycles, a company that helps startups, individuals, and small businesses with their financial planning. He has a vast amount of experience in the finance sector, having managed Google Play accounts for some of the world’s most successful unicorns. Amit is an expert in his field, and he uses his knowledge to help others achieve their individual goals.

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