If you find yourself crippled by credit card debt, having racked up charges that will be hard to pay off, you might be able to settle your accounts with your lenders for less than what you owe. And you might not need a debt settlement company to do it. Here’s how to negotiate credit card debt by yourself.
Settling debt means coming to an agreement with your creditors to pay back part of what you owe while being forgiven for the rest. If you’re considering settling your credit card debt, you’ve probably already missed some payments, perhaps even several months’ worth. You may have already been referred to a collection agency. All of this puts a big dent in your credit score.
Why would a credit card company let you off the hook for less than what you owe? It simply comes down to whether they want some of their money back versus none of it. Credit card debt is unsecured debt, meaning it’s not tied to an asset like a house or a car. So if a person’s financial situation gets so dire that they file for bankruptcy, it’s possible a credit card company won’t see any of the debt repaid.
Some people work with debt settlement companies to help them negotiate a settlement with credit card companies, but it’s also something you can do on your own. Debt settlement is not without its risks, however. Your credit could take a further hit and it could take years for it to recover, but it’s a definite option for debt relief. Here’s what you need to know:
Call your creditors: Know the timeline and the goal
Before you pick up the phone and contact your credit card companies, make sure you fully understand your debt situation. Find out who you owe, how much you owe, and the interest rates you’re paying.
Also find out when you last made a payment on the account or accounts. It’s often ideal if you can settle your debt before it becomes 180 days delinquent, when many creditors write it off as a loss. If you cannot settle your account before charge off, you will still owe the debt if it is written off, but it will be reported as a charge-off on your credit report, which hurts your score even more. That’s also a point when a creditor might sell your debt to a collection agency.
Make a list of all your debt, not just from credit cards. That will help you give your creditors a fuller picture of your financial situation. It can sometimes be helpful to refer to the fact that you have other creditors to contend with if they are unwilling to work with you.
You should also know how much you can afford to pay to settle your debt, whether as a lump sum payment or in installments.
The goal is to negotiate a settlement that is acceptable to your credit card company and hopefully a big reduction on what you owe. You also want to work out a payment plan that you can stick to because you don’t want to end up missing more payments.
“It can sometimes be a challenge to know who to settle with first, second, third when you have many credit cards and loans to contend with,” Michael Bovee, co-founder of Resolve, said. “Some creditors are more aggressive than others, and it can be important to target some settlements earlier than others. There are also instances where payment terms on your settlement will not be an option, which means all of your available cash flow could go to one account earlier than others. Understanding which creditors to target early on is something the free Resolve tool is designed to help you with.”
Negotiate credit card debt: What’s the plan?
Once you have a good idea of your financial situation and what you can afford to pay, you can consider some of the available options for settling with your creditors. Not all the options are true settlements, but they can still give you some relief.
Hardship plan — If you’ve already missed payments on a bank credit card, your bank may have already reached out to you about a payment plan. They might have offered to reduce your monthly payments through a hardship plan. These lower payments are achieved by reducing your interest rate. They may also waive or eliminate fees and penalties. There are both temporary and long-term hardship plans. On a long-term hardship payment plan, your account is canceled and your interest rate is frozen while you repay your debt for up to five years.
Workout agreement — You may be eligible for a workout agreement with a bank credit card. This is when the bank eliminates or simply lowers your interest rate as well as your monthly payment. In conjunction with this you may ask the bank to forgive late fees or other penalties as well as reduce your balance. Under this plan, your credit line won’t be canceled as it will with a hardship plan, but it may be cut.
Lump sum settlement — If you have access to a good amount of cash, or can put it together fairly quickly, you can try negotiate a settlement with the credit card company in three payments or less (creditors are precluded from offering better than three-month terms if your account has not yet been charged off).
Debt Settlement Plan — This isn’t the easiest process and it will hurt your credit scores, but it could be an alternative to bankruptcy if your situation warrants it. A debt settlement plan over a longer period of time will require you to negotiate an agreement with your creditors to pay back some of what you owe, either in installments or a lump sum. For some, this could mean not settling all debts for a couple of years. This will probably lead to a fair amount of back-and-forth negotiating.
Call customer service to negotiate credit card debt
If your creditor hasn’t already reached out to you, you should reach out to them. Asking for someone in the collections and recovery department may be the most effective route to getting the right person on the phone. You want to talk to someone with enough authority to cut a deal with you when it comes to your credit card. And remember, you typically want to be at least 90 days late, and often moreso, before talking to a creditor about your options to settle your account for less.
Once you get that person on the phone, and have laid out your situation, stick to your guns and don’t be afraid to counter their initial offer. You have already figured out what you can pay and you shouldn’t overextend yourself financially. You might also want to talk to an attorney to help you with the settlement details.
Once you have worked out a settlement with your credit card company, it’s crucial to get a copy of your agreement so you have proof of your payment terms.
How Resolve can help
Having an expert in your corner during negotiations may not only give you peace of mind, but help you get a better deal. Resolve does the legwork using data to determine appropriate offers and get you the best possible debt settlement. We want to help you get the best deal possible.
Resolve does fees differently. Debt settlement companies may charge high fees and won’t maximize your savings because they will be getting paid based on how much debt they are settling on. Resolve prioritizes your needs and your savings while also offering you expert advice and opinions along the way. Our partners in the Resolve Network can help you achieve your goals with lower fees; you may even be able to avoid debt settlement altogether.
Here’s how our pricing works:
- If your debt is $20,000, your fee with a typical debt settlement company would be 20 to 25% of your total debt, meaning you’d pay between $4,000 and $5,000 in fees.
- Your fees for that same service using the Resolve platform are 15% and are only charged on your saved debt. So assuming your $20,000 debt was settled for $10,000, you would pay just $1,500 in fees.
If you haven’t yet created a Resolve account, click here to get started.