Get out of credit card debt by negotiating.
While it is possible to get out of credit card debt by negotiating yourself, it is challenging. Many lenders are now open to this approach though. Here are some tips and the best ways to reduce or eliminate your credit card debt by using this approach.
Determine and decide upon what solution will work for you
You need to determine what kind of arrangement with the credit card company will work best for you. There are four primary solutions and they include: workout arrangement, lump sum settlement to get out of credit card debt, forbearance, and a debt management plan.
- Workout arrangement. The bank will either decide to eliminate or lower your interest rate. In addition, they will often times agree to stop charging you fees, including over-limit charges or late fees. A workout arrangement can either be temporary or permanent, which will be until you have paid the entire balance of your bills and debts.
Implications of this option include : Your credit score may be impacted but this will be determined by how the credit card company reports the arrangement or your payments to the credit bureaus. Your credit line will almost always be cut, so you can't use the card in the future, which is probably a blessing.
- Lump-sum settlement. If you have access to some money, you can try to negotiate a settlement of your credit card debt for less than the full amount owed.
Implications of this option include : This will almost always lower your credit score. The impact will be similar to if the debts were written off by the credit card company. In addition, if you do negotiate for a lump-sum settlement, get the deal in writing.
- A credit card debt forbearance program. This will offer short term relief from making payments while you get back on your feet.
Implications of this option include : You will still need to pay all the money you borrowed, and in some cases possibly more. What a forbearance negotiation does is it offers you a brief break from full payments on your debts. So maybe your creditor will say everything needs to be repaid in 2 years. This is not the same as elimination and is not forgiveness of any outstanding credit card debt.
Perform a realistic review of your total debt and income
Be sure to ask the credit card company for a breakdown of your bill. Determine how much was actual purchases and how fees and charges. If the review of the credit card bill and any statements show that had a credit limit of $3,000 but have an outstanding balance of $5,000 when adding in late fees, charges, and interest then you may be able to negotiate back to a payment for the principal balance only. In some cases individuals may also get a reduction or elimination of the various fees if you pay it off.
Before you negotiate to get out of debt, be sure to take a look at your income as well to determine how much you can afford to pay towards your debt each month. Know exactly what you can afford, and do not overextend yourself. If you negotiate a solution and then fall behind again then your options will be even more limited.
Call the credit card company and negotiate your credit card debt
The next step is to call your credit card company, as often and many times as it takes. Many customers need to call repeatedly to ask for help and to try to start the negotiation process. The reason for the multiple calls is that it is typically not very easy to get the correct person. You may get bounced around a bit and you need to be persistent in order to get a debt settlement or reduction on your own. You need to find someone from the creditor that can negotiate with you and address your concerns. It is a good idea as well to get the request in writing, and to send them a hardship letter.
The fact is that customer service representatives who will answer your call most likely will not have the authority to negotiate with you or grant what you need, even if they won't admit it. Always try to ask for the the team or department that handles workout arrangements or debt settlement arrangements, as they will often have the “power” to neogitate a deal. Usually this can be done by asking for a credit manager upstream, and asking for someone with the authority to negotiate and make this deal to help you get out of credit card debt. Find the top ways to negotiate a lower interest rate.
Unfortunately every bank and credit card company is structured differently, with different department names, policies, and special credit card assistance programs. From experience, some department names to ask for and try include: workout program, loss mitigation, and the in-house help program.
Once you do get the correct person on the line, you need to ask for that person's name, telephone number, and ID number (if there is one). Keep everything for your records. Then begin to negotiate and explain what you need and why. After you are finished with the call, write down a brief summary of the conversation with the time and date. In particular, note who you spoke with. Keep all of your notes in a notebook with whatever additional correspondence and deal terms that you get from the credit card company.
Be open and honest. Tell them what you want to pay, then ask them what can you do. The negotiations that take place to get you out of debt will more than likely take a while, and be a “marathon”, not a sprint. You should expect to make multiple phone calls to the credit card company and also talk to a wide variety of people, who may even contradict each other on the deal.
Another impact to consider
Credit card debt negotiation can have other impacts. Anyone trying this approach on their own should be mindful of these. The following could occur, including :
- A negotiated settlement may lower your credit scores. Before you fully agree upon and accept a negotiated deal to get out of debt, be sure to ask exactly how your arrangement will be reported to the various credit bureaus. If the bank or financial institution is forgiven actual debt, that may very well be considered a partial settlement of your debts. While a settlement will satisfy the obligation you have to pay off the credit card debt, the impact to your credit score can be almost as bad as walking away from your debt or filing a bankruptcy. Find how to repair your credit.
- Future credit suspended. After you contact the credit card company, the card company more than likely will freeze your credit limit. This is done to ensure the debtor stays on track in the future.
- Possible tax consequences to debt settlement. Oftentimes if a creditor forgives more than $600 worth of the principal on your credit card debt, it will report the amount that is forgiven to the IRS via a 1099-C form. For example of how this may work, if a card issuer negotiates with you and you agree to make a lump-sum payment to get out of credit card debt, for example if you pay a $2,500 payment to settle a $4,500 credit card bill, you will more than likely have to pay income tax on an additional $2,000 in income next year. However, another option is that if the credit card company eliminates fees or interest that is due, or if they agree to lower your interest rate, there are no tax consequences.
- Need to keep good credit going forward. All of the negotiating and other ways to reduce debt won’t do you any good if not sustained. Find a list of good credit card tips from experts.
Ways to negotiate
Be open and honest with your lender, this is always critical to do. Sum up your situation for them. You need to explain that your financial situation has changed, that you have an emergency or some other issue, but stress that you still want to honor your commitment to pay your bills and debts. You can either ask what they can offer you, or better yet propose your own plan. During the negotiations they may say yes, no or they may refer you to another department. No matter what their answer is, there are steps to take to negotiate lower fees and rates.
One option that is worth considering is saying to the effect that if you can't reduce my credit card payments by X amount, I'm not going to be able to pay my debts or bills. Or you may decide to focus on getting a lower interest rate, which will have the effect of automatically lowering your credit card payments due to the lower rate and shift more of your payment to paying off the principal balance.
Never be afraid to negotiate strongly and haggle. Like in most negotiations, you should very rarely accept the first offer presented to you. You never do that when you buy a house, or buy a car, right. And do not do that here either. At the end of the day the creditor wants to find a solution to so they can guarantee some form of payment from you.
One common question is should you mention the B-word (bankruptcy) to them. If it is something you're considering doing, then absolutely yes, you need to say it to them during the negotiating process. This may allow the creditor the opening they need to present you with a better offer. But the process of asking for help, and trying to negotiate a deal can be diffiult....not everyone can do it. So there are things to do to increase your chances of success, and find additional ways to get help negotiating.
Get the negotiated deal in writing
People change jobs. Banks are sold or merge. Life happens. Therefore, for your protection you absolutely need to get an agreement in writing that puts everything down on paper. It should cover the fact that the account was paid off (or will be paid over time), you need to determine what will go on your credit reports, and you should get forms for tax reporting (called a 1099-C). Get the deal in writing before you pay off the debt.