Credit card debt can be extremely stressful. In the fourth quarter of 2018, the average American held more than $8,788 in credit card debt, according to a recent WalletHub study. And the Consumer Financial Protection Bureau’s research indicates that that number is likely to keep growing.
When numbers reach that high, or even higher, it can seem as if there is nowhere to turn. The payments keep coming but your debt isn’t decreasing. Thankfully, there is the option of negotiating your credit card debt. It’s not easy, but it is possible, and you can get help. Here are some ways how to get out of credit card debt.
There are key steps to negotiating credit card debt, but they’re not simple. You’ll have to find a plan that works for you when trying to negotiate credit card debt. Options include a workout arrangement, forbearance, debt management plan and debt settlement.
With a debt settlement program, you negotiate a settlement for less than the full amount owed. The credit card debt negotiation depends on whether or not the individual creditor will work with you. And you need to understand that paying less than you owe impacts your credit score and some forgiven debt is viewed as income and may have tax consequences.
With a debt management program, a certified counselor negotiates credit card debt arrangements for you. You’ll pay back your principal in-full, but your interest rates are reduced or even eliminated. Late fees and penalties may be waived. You’ll only have one payment to make each month instead of several. Your credit score stays intact and may even improve while on the program. The key to a successful debt management program is that more money goes to eliminating the principal, while high interest rate charges end.
With a workout arrangement, the bank may eliminate or lower both your interest rate and minimum monthly payment, and they will often stop assessing late fees or over-limit charges. If you go this route, your credit line will likely be cut off and the impact to your credit score will depend on how the issuer reports the credit card debt negotiation arrangement to the credit bureaus.
If your financial problem is only temporary, such as a medical event that puts you out of work for a few months, then your credit card negotiation could take shape as a forbearance. A forbearance offers a brief break from full payment, not forgiveness. This is intended to be a bridge from financial stress to financial stability.
Although you may hear that creditors won’t work with you until you’re already behind on payments, the responsible thing to do is seek help as soon as you realize you’re in a financial bind. If it’s a short-term problem, try calling the creditor yourself. Explain your situation and ask for a forbearance. If it’s a long-term problem, such as a divorce or death of the primary breadwinner, then you likely need debt management or debt settlement help from experts.
To help figure out what options might work for you, fill out our form to set up a consultation or better yet, call us so we can help find the best solution for your situation. We are A+ rated by the Better Business Bureau and have helped thousands of people become financially stable. So, don’t struggle any longer. Give us a call. When life happens, we’re here for you.
A Short-Term Solution for Negotiating Credit Card Debt
When it comes to credit card debt negotiation, the CFPB says that first thing you need to think about is why you are in debt. Is it a temporary job loss or long-term issue? Understanding how long you might be in this situation can be helpful when you call your creditors to negotiate.
If your financial struggles are only temporary and you’ll have income to catch up soon, try to negotiate forbearance, where you ask for a temporary payment reduction. This option would reduce your payments for a few months while you get back on your feet. A payment reduction can include options like lowering your interest rate or lowering your monthly minimum payment for a short time, as well as eliminating late fees.
This option is generally the best to use only when your financial hardship is temporary. It is not a long-term fix; it simply provides some relief while you get back on your feet. Also, keep in mind that the creditor will probably freeze your account, so you can’t make any new charges. If you don’t want this to happen, ask before you try to negotiate your credit card debt.
If the financial hardship you are looking at is long term, it might be time to look at some other options.
Is credit card debt keeping you from success? Learn how to get your debt under control.
Long-Term Solutions for Negotiating Credit Card Debt
Credit card debt settlements happen when you’ve fallen behind on your payments and creditors are threatening to send you into collections. Depending on the creditor, they might contact you first to get your debt settled. However, it can help to make the call yourself to try to work out a plan you are comfortable with before they contact you. There are usually two options when it comes to a credit card settlement, and each comes with its own pros and cons.
Credit Card Payoff Plan (Workout Arrangement)
Sometimes the credit card company will mail you a letter saying they would be willing to set up a payoff plan with you. A credit card payoff plan is a series of three payments where each payment is a gradually increasing lump-sum of what you owe, until your entire balance is paid off. In this case, your credit card will be closed, and your credit score would take a hit. This can often be hard for individuals who are living paycheck-to-paycheck; most consumers facing financial hardship can’t easily come up with large sums of cash within a set amount of time.
PRO: Your full debt is paid off within a short amount of time.
CONS: Lump payments can be hard to make; your account will close, hurting your credit score; you could also take a credit hit depending on how the creditor lists your debt.
Credit Card Debt Settlement
Settling credit card debt is when you pay the company less than what you owe. Sometimes a creditor will waive late fees or interest rates if you pay off the principal, but you will have to pay off your debt in a lump-sum. You can also negotiate to pay back only part of what you owe to your creditor. This is known as a partial settlement.
A partial debt settlement is helpful if there is no way you can pay off the full amount owed. With this debt forgiveness, the creditor “forgives” part of what you owe, but you are still on the hook for the rest, which is likely due in a lump sum.
A credit card settlement can be handled on your own, or you can enlist the help of a debt settlement company. While the upside to this is that it gets you out of debt, there are some drawbacks. Your credit will be negatively impacted by the company closing your credit card. You also you might have to pay taxes on the amount forgiven, as it counts as income if it’s more than $600.
PRO: Your erase your debt with one lump-sum payment that pays back only a portion of what you owe.
CONS: Your account is closed, your credit is hurt, you may have to pay additional taxes because the forgiven amount is considered income.
Dealing with Credit Card Debt Negotiation
The hardest part about credit card debt negotiation is getting on the phone with your creditors. They want you to pay everything you charged and often don’t want to work with you to negotiate lesser amounts. Any partial settlement means a loss in revenue for the company.
Before you call, you should prepare everything you need to say and the exact amount you can afford, be it a monthly reduction or a settlement. You must remain strong and firm in how much you can afford; otherwise you may negotiate an arrangement you can’t afford to keep up. Know now that you may have to call repeatedly and this likely won’t be a one and done scenario.
Tips for Negotiating Credit Card Debt
- Have your bills and budget in front of you.
- Have a note pad with a working pen.
- Confirm exactly how much you owe and write it down.
- Ask to speak to the debt settlement, loss mitigation or workout department.
- Negotiate the amount until you reach the number you can afford.
- Make sure to make a note of each person you speak with and their role.
- Get your final payment plan in writing!
Make sure to keep a list of whom you speak to and when. Don’t be afraid to ask for multiple supervisors if you aren’t getting the information or answers you need. When you negotiate credit card debt yourself, don’t forget to discuss how the creditor will report the negotiated arrangement to the credit bureaus. Ideally, you want it to show as paid in-full and current.
Once you do reach an agreement, make sure you get it in writing from the company. This helps ensure you have a binding agreement, no matter who may leave the company after the fact.
Getting Help with Credit Card Debt
If you are just too overwhelmed with the situation and don’t think you can handle the time and tough exterior it takes to navigate a debt settlement on your own, there are companies that can help you.
Debt settlement companies contact your creditors and work out agreements with payments you can afford. You will put money into an account with the debt settlement company. Then it works with your creditors to negotiate the settlement. Once they reach an agreement, the settlement company moves your money to the creditor and takes its fee.
Debt management companies have a similar structure, but instead of settling, they create a financial plan and repayment schedule for all your debt. The CFPB and others sometimes call them credit counseling agencies. They may accept payments and deposit them into an account, using those payments to pay off your creditors in monthly, agreed upon installments. You will often have to be accepted into a debt management plan.
Both of these options have a service fee attached to them, and you can’t miss any payments with either method. Also realize that even though you are getting help with a debt settlement, your credit will still be hurt because you won’t be paying back your debt in full.
Making the choice to negotiate your credit card debt isn’t easy. It’s important to look at your overall finances to see if this is your best path. Even then, look at your negotiation options to decide which is the right move for your situation.
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Article last modified on March 19, 2020. Published by Debt.com, LLC