How To Negotiate Credit Card Debt (2024)

If you have credit card debt, you’re not alone. Total U.S. credit card debt has been hitting new record highs.

What may surprise you is that you can negotiate your credit card debt independently. We often rely on professionals to address complex challenges—car mechanics, lawyers, trainers, etc. But it doesn’t take a finance degree to develop a payment plan with your credit card provider.

Being proactive about your debt can help you avoid a charge-off and protect your credit score. More importantly, taking control of your debt could reduce the stress you feel without a plan.

Why Should You Negotiate Your Credit Card Debt?

You may hear from a debt settlement company if you carry a high credit card balance or have missed payments. Often, these organizations promise to resolve your debt for pennies on the dollar. It can sound like a relief to have someone else do the work for you. However, the Federal Trade Commission cautions that you may not get the results you want.

Debt settlement companies may advise you to stop making your minimum credit card payments which can result in late fees, a higher penalty APR and ultimately more debt to negotiate. Failure to communicate with your card provider and failure to stay current with payments may result in default. If you’re in default, your account could be moved to collections. Missed payments can adversely impact your credit score even if your debt isn’t charged off.

Also, consider that not all creditors will work with debt settlement companies. These debt negotiators may not disclose this upfront. Because many debt settlement companies are for-profit, their primary goal is to make money off of you, not to resolve your debt.

In many cases, your best option is to negotiate your own debt. By taking charge of the situation, you have a better chance of an outcome that will actually work for you.

Types of Credit Card Debt Settlement Plans

Negotiating your debt may be intimidating, but this is a well-worn path that many have traveled. Credit card companies frequently offer one of several types of settlement plans: workout agreements, hardship plans and lump-sum settlements.

Workout Agreement

A workout agreement is an agreement for repayment with your creditor, typically made when your account is in default. Workout agreements can include a reduction in your interest rate or the cancellation of fees associated with the default while you are in repayment. If you enter into a workout agreement, your creditor can provide you with easier repayment terms for a specified period to allow you to pay down your balance.

Once the agreement term expires or if you fail to comply with the agreement, your credit card’s regular terms, including interest and fees, may take effect. If a penalty APR was assessed on your card before the agreement, you may revert to the penalty APR.

Make sure to get any agreement in writing. Once you enter into a workout agreement, you must comply with the new terms. Your creditor doesn’t need to notify you if your interest rate increases if you’re out of compliance.

Hardship Plan

If you experience hardship due to a medical crisis or job loss, some credit card companies will enroll you in a hardship program. While the word “program” makes these seem clearly defined, your creditor will usually develop a plan for your specific case.

Lump-Sum Settlement

This is an agreement to settle a debt for a single payment or lump sum. In most cases, this is the approach a debt settlement company will take. For instance, if you owed $12,000, you might settle upon a total payment of $8,000. You can also ask to negotiate a new principal amount owed on your credit card, but in this case, fees and interest rates will still apply. Remember, creditors don’t have to accept less than you owe, but it never hurts to ask.

Be aware that settling debt for less than you owe could have unexpected tax consequences. If you settle your debt for a reduced amount, your credit card company could report your settled debt to the IRS. Because you’re paying less than the amount you spent, the debt reduction could be considered taxable income. If you’re settling a large debt, consult your tax professional to learn more about your tax impact.

Where To Start With Credit Card Debt

Evaluate Your Debt

Take some time to research how much you owe on your credit card or cards. Determine if your payment is overdue and calculate the total amount you owe.

Take note of any fees, as these may be easily negotiated if you have a history of timely payments. You may want to jot all of this down so you have it clearly in mind when you call.

As with any negotiation, it’s important to know how much you can afford to pay each month and don’t overpromise what you can pay.

Keep the Lines of Communication Open

Once you have your data together, schedule time to call your credit card provider when you won’t be rushed.

If your financial circ*mstances have changed, inform your credit card company that you’re having trouble making your minimum payment and explain why. Be factual. Explain your hardship, but realize the call representative may have fielded many calls. Don’t take offense if they don’t initially understand or sound empathetic.

Ask If You Qualify for a Relief Program

You may qualify for a specific relief or hardship program. Ask your creditor if it offers these programs and if you qualify for them. Come to the call with a specific list of questions.

Relief and hardship program questions to ask include:

• If I can’t make my payment, do you have a financial relief program?
• Are there fees associated with these programs?
• If I defer or lower my monthly payments, will interest continue to accrue during this relief period?
• How long does the relief period last, and when will I need to start repaying my bill?
• What happens if my financial situation hasn’t changed once the period ends? Is there an option to reevaluate?
• What information will be reported to the credit reporting agencies?

Even if you don’t qualify for a relief program, be prepared to ask additional questions:

• Do I qualify to reduce my interest rate based on my customer loyalty?
• Can I defer or reduce my monthly payment?

Ask for a Payment Plan

If you’re willing to start making payments immediately, your creditor may be willing to offer a payment plan. Your credit card provider wants your money. If it enters into a payment plan with you, it’ll likely get more money than if you default or if it lets a debt settlement company negotiate.

Your creditor will consider some key factors when determining whether to offer a payment plan:

• Your payment history
• The total amount owed
• Your available credit
• The length of time you’ve held the account

Your payment plan will depend on whether you need to keep using your card. If you stop using your credit card, tell the representative you don’t intend to continue making changes. Ask if they can reduce the interest rate and work to calculate an affordable monthly payment.

If you need continued access to your credit card, ask for a reduced monthly payment or interest rate. If you’ve been a long-time client with a strong payment history, you have stronger negotiating power. Your credit provider understands that if it supports you during a difficult time, you’ll likely remain loyal when your income rebounds.

Be Persistent

If at first you don’t succeed, call back! Don’t take an initial “no” as the final answer if you have a strong case. If the first person couldn’t negotiate with you, try again. Being persistent demonstrates you’re serious about resolving the issue. You may also get a call representative with more seniority or someone more experienced with credit card debt resolution.

Be calm and kind to each representative. Remember, they have limited authority. You may need to speak with a different department to resolve your issue.

Get It in Writing

Whatever you agree to, make sure to get the agreement in writing. Review it to ensure your agreement’s written summary aligns with your understanding. And then keep it for your records.

Keep a record of all your interactions with your credit card provider. That can include a call log with the date, contact name and summary of each call plus a payment log of the date, method and amount of each payment made.

Make sure you know full details about how any agreement will impact you.

• Will you still be able to use your credit card?
• How will your card provider report the agreement to the credit bureaus?

Ask for Help

Even though you don’t need to be an expert, it can be empowering to speak to a professional. If you seek professional advice, look for an approved credit counselor. Most of these services are free and federally regulated. An accredited financial counselor or financial fitness coach can provide unbiased information to help you make a decision that best meets your needs.

Bottom Line

If you’re behind on your payments or have lost your source of income, speaking with your credit card provider is an important first step in managing your debt. By communicating with your creditor, you can avoid additional fees and potentially protect your credit score. Knowing your options and working with your creditor to develop a plan can set you on the path to controlling your credit card debt.