How to Negotiate Credit Card Debt: A Step-by-Step Guide

Early in August, the Federal Reserve Bank of New York stated that credit card debt levels have crossed $1 trillion for the first time in America’s history. “Credit cards are the most prevalent form of household debt and continue to become even more widespread,” reads the New York Fed’s blog.

Credit card debt can feel like a never-ending rollercoaster. If you are running behind on credit card payments, there is one way to navigate the crisis. You can negotiate payment terms with the creditor and pay less than your original debt amount.

You’ve got more power in this situation than you might think! It’s time to roll up those sleeves and dive into the world of negotiating your credit card debt like a pro.

Step 1: Know Your Numbers

Before you start any negotiation, gather all the information such as total debt, interest rates, minimum payments, and any fees. This is your starting point, and it’s crucial. Study what the other creditors are offering as this may come in handy while negotiating.

Familiarize yourself with the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Billing Act (FCBA). These acts are here to protect you, so know them well.

Step 2: Consider All Debt Settlement Options

2.1 Workout Agreement

In a workout agreement, you can mutually decrease interest rates, forgo cancellation fees with your creditor or extend the deadline. It can also include lowering monthly instalments and your borrowing limit.

Before working on this agreement, chalk out a realistic timeline and interest rates that are feasible for you. You can even take into account any upcoming promotions, additional incomes and expenditures in the foreseeable future while planning this.

2.2 Lump-Sum Settlement

In a lump-sum settlement, you can settle the debt in one go. You can propose a lower amount of the total sum you are owed if you have that kind of savings. Remember, you can also borrow from your family or friends to settle this debt and repay them later. The only advantage here is you won’t have to pay any interest to your loved ones. 

Opt for this option only if you have proof that you can settle the amount in a single payment. If you settle for a lesser amount, you might be considered for a tax. Consult a tax professional before finalising the deal.

2.3 Hardship Plan

You can opt for hardship or forbearance programs if you have gone through a medical crisis, injury, sudden job loss or any other financial emergency. Your creditor will consider reducing your payment or interest fees based on your case.

Please note that not all creditors offer hardship programs.

Step 3: Pick a Negotiating Route

You can either hire a debt settlement company to help you negotiate on your behalf or do it by yourself. If you are on your own you can either write a letter, call your creditor or have an in-person meeting to discuss debt settlement. Keep a record of all the conversations and note down every point for future reference.

Step 4: Lay it All Out

This is your chance to spill the beans. Explain your situation honestly and clearly. Maybe you lost your job, had unexpected medical expenses, or just got a bit carried away with online shopping. Whatever it is, own it and let them know you’re committed to finding a solution.

Step 5: Know All Risks

Once the creditor has agreed to negotiate, ask them all the risks associated with the new deal. For instance, in a lump sum agreement, your credit score will suffer or your account will be temporarily frozen. In other cases, may need to pay additional taxes. Discuss what happens if you are not able to go through with the new deal.

Step 6: Get it in Writing

Upon reaching an agreement, make sure you get all the details in writing. This includes the agreed-upon settlement amount, the due date, and a confirmation that the debt will be considered paid in full after the agreed-upon amount is paid.

Step 7: Keep Your End of the Bargain

You’ve made a deal – now it’s time to stick to it! Make sure you pay the agreed-upon amount by the specified due date. This is your ticket to debt freedom, so don’t drop the ball now. A few weeks after you’ve settled your debt, pull your credit report and make sure it reflects the agreement accurately. It should show the debt as “settled” or “paid in full,” not as a lingering balance.

Remember, negotiating credit card debt is a skill that takes practice. Don’t be discouraged if it doesn’t go perfectly the first time. Stay persistent.