Negotiating Credit Card Debt: Learn The Experts’ Secrets

According to the most recent statistics from the Experian credit bureau, there is currently over $750 billion of outstanding credit card debt maintained by consumers in the United States. Credit card debt, by itself, is not a bad thing. The American financial system is built on credit and few people would be able to purchase new cars, go to school, or even buy a home without access to credit and personal loans.

However, the problem arises when borrowers are unable to keep up with their monthly payments or find themselves unable to pay the debt at all. This issue became increasingly prevalent during the 2020 global pandemic as over 51% of Americans added to their existing credit card debt. During the pandemic, many people lost their jobs, saw a reduction in hours, lost their benefits, or had to replace their higher-paying jobs with lower-paying jobs. It’s easy to see why so many people needed the extra credit just to survive, pay their bills, and provide for their families.

Thankfully, though, the pandemic also made it easier for consumers to negotiate their credit card debt! While you may not be able to completely eliminate your debt, you can certainly negotiate to reduce your debt or work out an affordable payment plan that allows you to pay off your debt with reduced penalties.

In today’s article, we’re going to discuss all of the options that you’ll be able to employ in order to negotiate your credit card debt so that you can lift the burden from your shoulders and move on with a clean slate.

What Does Credit Card Debt Negotiation Involve?

If you’re reading this article, then the chances are that you’ve fallen behind on your payments or you fear that you’re about to fall to behind. You may have already received some troubling phone calls, letters in the mail, emails, or texts about your debt and may have even seen a hit sustained to your credit score. Thankfully, though, there’s hope with credit card debt negotiation.

As a consumer, you have certain rights that are afforded to you by the Consumer Finance Protection Bureau. The Bureau has clearly outlined rules regarding how debt collectors are allowed to contact you as well as strict rules against threatening or suing borrowers. You also have the right to attempt to negotiate a debt with your creditor.

While credit card companies aren’t required to accept a debt settlement offer or accept your repayment terms, it’s always in their best interest to do so. This means that almost all credit card lenders can be negotiated with.

During the negotiation process, you’ll usually speak with a collections agent about setting up a plan to repay your debt in full or outline a settlement deal where you’ll only be required to pay a portion of the total amount owed. Both of these options give you a way to get rid of the debt and move on with your life.

Short-Term Debt Negotiation Solutions

First, let’s talk about short-term debt negotiation. If you’ve just started to fall behind, you’re unsure of how much longer you can continue making payments, or your total amount owed is smaller, then your best bet is to seek a short-term debt negotiation solution.

Short-term debt negotiation solutions generally require far less paperwork and negotiation. Long-term solutions are designed for those with more significant amounts of debt, higher monthly payments, or accounts passed to collections. Conversely, short-term solutions are designed to help you “catch up” before your account is sent to collections or you incur damaging interest penalties and late fees.

Forbearance

The most common short-term debt negotiation solution is to request forbearance. Essentially, you’ll inform the creditor of your financial situation and explain that you’re having trouble keeping up with your monthly payments.

Here, it pays to have a good sob story about how you lost your job, had unexpected car repairs, medical bills, or another situation. Your best bet is to be honest. Remember, you’re not trying to impress your creditors; you’re trying to get them to understand your situation and cut you a break.

If you are granted forbearance, the creditor will usually do one or multiple of the following:

  • Temporarily reduce your monthly payments.
  • Allow you to “skip” a payment and divide it across future payments.
  • Temporarily reduce your interest rates.
  • Temporarily eliminate or reduce late penalties.

Forbearance is a short-term allowance that your creditor provides you with to give you a chance to get back up on your feet. The idea is that by allowing you to catch up, you’ll soon return to being a reliable borrower who makes monthly payments on time.

Long-Term Debt Negotiation Solutions

Long-term debt negotiation is typically reserved for accounts that have already been passed into collections or have become past due and are in danger of going to collections. There are two main long-term solutions that you can seek:

  • Debt Settlement Plan (DSP)
  • Debt Management Plan (DMP)

Each option has its own benefits and drawbacks, which we’ll discuss further below.

Credit Card Debt Settlement Offer (Debt Settlement Plan)

If you owe a larger amount that you don’t think you’ll ever be able to repay completely, then you might consider negotiating a debt settlement offer. Usually, before negotiating a debt settlement, your account will have to have been passed to collections and your account will already have been closed.

Basically, a debt settlement plan involves contacting your original creditor and negotiating an agreement to settle the debt for an amount that’s less than what you originally owed. In some cases, you may only end up paying for half of what you originally owed. Debt settlements are typically paid in a large lump sum. However, some debt settlement plans involve making monthly payments.

Pros and Cons of Debt Settlement

The main benefit of a debt settlement is that you’ll end up paying far less than what you originally owed, which can really help your pockets. However, the downside of a settlement is that the account will be reported on your credit profile as a “settled” account. Debt settlements are usually derogatory for your credit score, but they are certainly better than a default or unpaid report.

Credit Card Payoff Plan (Debt Management Plan)

If you think that you can pay off the entirety of your debt with the right amount of time, then you may opt to set up a debt management plan. Your creditor will typically freeze your credit card with a debt management plan to prevent you from making future purchases until the debt is repaid. After the debt is repaid, you may be able to re-open your credit card account for future use.

With a debt management plan, you’ll agree to make affordable monthly payments on the unpaid balance until it’s all paid off. Once the account is paid off, it will appear on your credit report as “paid in full.”

Pros and Cons of a Debt Management Plan

The main advantage of a debt management plan is that you may be able to save your credit score from plummeting too much. Although the missed payments will still appear as derogatory on your credit report, your final account will be reported as paid in full, which may even help to boost your credit.

An additional benefit of a DMP is that you may be able to use your credit card again in the future. Finally, debt management plans also eliminate interest and late penalties.

The only real drawback of a debt management plan is that you’ll have to pay the full amount that you owe.

How To Negotiate Credit Card Debt Yourself

Here are the steps that you should take if you wish to negotiate your credit card debt by yourself, without the aid of a professional agency.

Gather Your Documents

Your first step is to gather all of the information pertaining to your credit card debt, including:

  • Previous correspondence with the creditor regarding your past due balance.
  • A print-out of your total balance statement on your account.
  • Proof of income and/or financial hardship.
  • Proof of living expenses that justify a negotiation.

Speak To The Right People

Once you have your documents, you’ll need to call your creditor and ask to speak to the debt settlement department. These are the professionals who will work with you to negotiate your debt.

Take Down Names And Contact Information

As you speak with representatives, make sure that you take down their names, contact extensions, and agent IDs. This will help you verify information and prevent confusion if you end up dealing with multiple representatives.

Negotiate Like Your Life Depends On It

Your next step is to make a solid case for yourself. Explain your financial situation and don’t spare any of the details. You need to show the agents exactly why you aren’t able to keep up with your payments if you want them to work out a favorable deal. Don’t stop negotiating until you’re satisfied with the offer you get.

Get Everything In Writing and Keep Hard Copies

Once you negotiate a final deal, make sure that you get it all signed in writing and keep any hard copies that are sent to you. You may need these documents as proof in the future.

Make Your Payments On Time

Last but not least, make sure that you make all of your payments on time. Missing even a single payment on your debt settlement or management plan can hurt your credit or break the terms of your repayment plan. This could put you right back at square one.

Should I Seek Professional Credit Negotiation Help?

While it’s certainly possible to negotiate credit card debt yourself, you may find that it’s easier to work with a professional credit negotiator or credit repair agency. These agencies have tons of experience dealing with creditors and often know exactly how to phrase your argument in order to get you the best deal. They’ll also take care of all of the more frustrating aspects of debt negotiation, save you time spent on the phone, and save you the stress of talking to your bill collector.