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Many people keep a large balance on their credit cards. In fact, the average American owes over $5,500 in credit card debt. 1
If, like millions of other people, you habitually max out your credit cards, you might be worrying about how you’re ever going to pay your credit card debt off. The good news is that you can often cut down your credit card debt by negotiating with your credit card issuer.
Can you negotiate credit card debt?
Yes, you can normally negotiate credit card debt if your card is unsecured (meaning that the lender has no collateral that they can take from you if you don’t pay). Most credit cards fall into this category.
With unsecured credit cards, your card issuer can’t pursue your assets if you fail to repay them, so they’re likely to want to work with you to ensure that they get at least some of their money back.
Situations in which you can’t negotiate credit card debt
There are several situations in which negotiating down your credit card debt probably won’t be an option:
- You have a secured credit card: If your card is secured (i.e., you paid a security deposit when you opened it), you generally can’t negotiate your debt. If you stop making payments, your card issuer can just repossess your collateral to clear all or part of your debt, so they don’t need to make any concessions.
- You haven’t missed any payments: You also might be unable to negotiate your debt if you’re not actually behind on payments yet. There’s less incentive for a credit card company to consider changing your agreement if so far you’ve managed to repay everything on time.
Types of credit card repayment agreements you can negotiate for
In general, when you negotiate credit card debt, you’ll either ask your lender to:
- Offer more favorable repayment terms (i.e., a lower interest rate and no additional fees)
- Waive part of what you owe so that you can clear your debt with a partial payment
We’ll outline the three main types of agreements you can ask for in more detail below.
1. Debt settlement
When people talk about negotiating to pay less credit card debt, they’re often referring to something called debt settlement.
Debt settlement is an agreement you make with your creditor or debt collector to pay less than the amount you originally owed (either as a single lump sum or in installments). In exchange, once they receive your partial payment, they’ll forgive the remainder of the debt.
Debt settlement has obvious benefits for your finances—you can clear your debt for less money. However, it does have several risks and downsides, which we’ll cover later on in this article.
2. Workout agreement
With a workout agreement, your credit card issuer will give you more favorable repayment terms. For instance, they might lower your interest rate or minimum monthly payment, or agree to waive certain fees (like late penalties).
A workout agreement is a good choice if you can afford to pay some of your balance each month but not all of it. It lets you pay back what you owe at a pace that you can handle.
However, as part of your agreement, your card issuer might close your credit card account once you’ve cleared your debt, which can hurt your credit score. That’s because, when they close one of your cards, your debt-to-credit ratio (the percentage of your available credit that you’re using) will increase, which the major credit scoring models (FICO and VantageScore) penalize.
3. Hardship program
You can ask for a hardship program (sometimes referred to as a forbearance agreement) if you suddenly find yourself under financial strain (e.g., if you lose your job or injure yourself and need to cover your medical bills).
Hardship programs are a lot like workout agreements—your lender may reduce your interest rate, stop charging you late fees or let you skip a few payments. The difference is that hardship programs are temporary. The normal terms of your loan will resume within a few months.
Many credit card issuers offer hardship programs, but they usually don’t publicize them (for obvious reasons—creditors don’t want too many people taking advantage of programs that let them pay less than they’d otherwise have to).
To find out if this is an option, call up your card issuer and ask whether they offer a hardship program, and if so, how you can qualify.
How to negotiate with credit card companies in 5 steps
If you plan to negotiate with your credit card company on your own, follow the five steps below to get the best results.
1. Find out how much you owe
Before you do anything else, find out what your outstanding balance is by calling your bank directly or by checking your account online. It’s also worth checking the interest rate on your debt. You’ll need to have these numbers on hand when you negotiate.
2. Consider your options
You need to decide whether you want to negotiate a debt settlement, a workout agreement, or a hardship program.
Think about what you need—if it’s just temporary relief while you get back on your feet, a hardship program or workout agreement might be sufficient. On the other hand, if you have no realistic prospect of paying your debt at all, you should ask for a debt settlement.
3. Call your credit card company
Once you’ve gathered all of the information you need, it’s time to call your card issuer. Make sure you’re speaking to someone who has the power to approve your request, like a representative from the debt relief or hardship department.
4. Be persistent
It’s unlikely that your lender will accept your first offer, so be prepared to make more than one. As mentioned, if you’re asking for a debt settlement, 50% of your original debt is a reasonable goal to shoot for.
5. Request an agreement in writing
If your lender hasn’t sent you a written agreement outlining the terms of your agreement, then there’s no guarantee they’ll hold up their end of the deal—a verbal offer isn’t enough. Make sure you get a document stating the terms of your deal to protect yourself before you start paying your debt.
How to get help negotiating with credit card companies
If you don’t feel confident about negotiating your credit card debt on your own, you can get help from one of the following:
Debt settlement company
You can hire a debt settlement company to negotiate with your debt collectors or creditors on your behalf. However, this can be a risky option because not all creditors will work with these companies, and they may instruct you to do things that will damage your credit score (described below).
You should also watch out for scammers. Avoid working with companies that charge upfront fees—legally, debt settlement companies are only allowed to charge you after they’ve successfully negotiated a settlement for you. 2
Nonprofit credit counselor
A better option might be to seek help from a nonprofit credit counseling agency.
A professional credit counselor can help you evaluate your financial situation and handle your debt, often free of charge. This might include enrolling you in a debt management plan (DMP), which means they’ll get your creditors to give you more favorable repayment terms on your debt so long as you stick to an agreed-upon payment schedule .
Does negotiating credit card debt hurt your credit score?
Unfortunately, negotiating your credit card debt can hurt your credit score—in particular, if you arrange a debt settlement. (Entering into a workout agreement or hardship program probably won’t hurt your credit, at least as long as you hold up your end and don’t miss any payments.)
Why debt settlement hurts your credit
When you settle a debt, your creditor will usually report it to the credit bureaus. A line will appear next to that credit account on your credit report indicating that it was “settled” instead of “paid in full.” This counts as a black mark on your credit report, and will damage your credit score in every major scoring model. 3
Debt settlement hurts your credit because it’s meant to be a last resort. The companies that create your score want to encourage you to pay your debts promptly and in full.
In addition, if you’ve decided to hire a debt settlement company, they may ask you to stop making payments on your debt while you save up enough money to make an offer. As a result, you might end up with multiple late payments on your credit report, which can severely hurt your credit score.
However, if you can’t afford to pay your debt in full, offering a settlement may still be your best option. After all, the alternative—not paying your debt off at all—is much worse for your credit. 4