If there was ever a time when credit card holders had leverage to negotiate a better deal on their credit card debt, now is the time!
With near record bankruptcies and unemployment, credit card issuers have had to write off a lot of uncollected balances. This makes credit card companies much more likely to want to work a deal with the credit card holder. I suppose it’s one of the silver linings to the great recession and credit card debt.
I should preface the remainder of this post by saying that while it’s a better time to negotiate the terms of your credit card debt with the issuer, it may not be easy. The idea is simple enough, but many issuers lack the staff required to deal with every delinquent account on a 1-on-1 basis, and they also can’t take a loss on every one.
So, how do you know if you may be able to work a deal on your credit card debt?
There is no hard list of criteria to determine who can and cannot negotiate a better rate, or a reduction of balance. But one of the sad but true facts of credit card debt is that most issuers won’t bend down to lend you a hand up until you’ve already been knocked down by your burden. It may seem nonsensical, but most credit card companies only start offering real solutions once you’ve fallen behind on payments and racked up serious fees and interest penalties.
Once the card holder has fallen behind 3 months or so, many companies begin offering forbearance or hardship programs that temporarily reduce interest rates and minimum payments. These programs typically last 3-6 months.
If you fall even further behind, you may be offered entry into a program to lower your interest rate or card balance for a year or more. This should be thought of as a second chance since further late payments can whack 100 points or more off your credit score and add even more fees and penalties. They could also send your account to a collection agency if you have stopped making minimum payments completely.
Debt consolidation and settlement companies are other options, but those can hurt your credit score even more and you may be better off doing things on your own.
Obviously, the best course of action is to avoid this situation completely and do everything you can to consolidate your debt on your own and pay it down ASAP.
Failing that as an option, you can press on with negotiating with your credit card company yourself.
Here are a few guidelines that may give you a shot at negotiating a better deal:
- Be clear and honest about the state of your finances and what you can afford. Any negotiation is a meeting on middle ground, where both parties are satisfied with the less than desirable situation. If you don’t approach the negotiation honestly, then the credit card company has no reason to trust you, and that means you’re stuck.
- Understand the timelines involved. Be aware of the credit card issuer’s definition of timelines. When is an account considered to be in default, and not just behind?
- Be willing to take a hit on your credit score. Whatever deal you get, it’s likely to have a negative impact on your credit score. Just know that going in, and you’ll have one less nasty surprise from the whole affair.
- Be proactive. Although the credit card company is unlikely to offer hardship programs until you start falling behind, you can start negotiating before that point – and you’re much better off doing so.
- Ask for a reduced interest rate. If you have a steady history of making payments on time, but you are finding it harder to do so then you may be able to work a lower rate. Even if this is only temporary, it will help free up some cash and let you gain some ground on paying your balance down.
- Ask for a pass on fees. Some credit card issuers are surprisingly open to forgiving fees associated with (slightly) late payments, or even balance transfers.
- Ask for an out on the total balance. Offer a lump-sum deal for a percentage of your outstanding debt. Try to get them down to 25% of your balance, but anything under 50% is a win.
- Get it in writing! ‘Nuff said.
- Get professional help. Go to the National Foundation for Credit Counseling locator page to find a Certified Consumer
Credit Counselor nearest to you.
Lastly, be sure to stick to your end of the deal or you will have little recourse if the credit card issuer files a lawsuit, and they will be much less inclined to work with you further.
It’s not impossible to work out a lower interest rate, or a temporary rate freeze or even forgiveness of a certain amount of your credit card debt but it’s not like wavy a magic wand either. And you need to seriously examine your spending habits to make sure you don’t fall into the same credit card trap further down the road.
Taking advantage of relief debt help can change your financial outlook starting today. Once debt relief services begin, they take the work off of your shoulders and begin to negotiate with creditors to your advantage and in ways you could never do on your own.
[...] How To Negotiate Credit Card Debt. [...]