How to Negotiate Credit Card Debt

If you're behind on your credit card payments, you might not see a realistic way out. In this situation, learning how to negotiate credit card debt could be your best solution.

Since credit cards are unsecured debt, card issuers are sometimes willing to work with consumers who need help. This isn't without its drawbacks. Negotiating credit card debt can negatively affect your credit score and result in the closure of your card. But if you've exhausted other methods, then it's worth considering.

In this guide, you'll learn how to negotiate credit card debt, the impact it can have on your credit, and how to decide if it's the right solution for your situation.

How to negotiate credit card debt

1. Call the credit card company at the number on the back of your credit card.
2. Ask to speak to the financial hardship or debt settlement department.
3. Explain your situation to the representative and see what your options are.
4. When you agree on a plan, get it in writing before you send any money.

There are a few different kinds of agreements you could come to with the card issuer

The most common include:

• A lump sum settlement: You offer to pay a set amount that's less than the total balance if the card issuer will forgive the difference. You'll need to have the money ready, because credit card companies don't want to wait once they've agreed to a debt settlement. The card issuer will close your credit card account when you settle a debt for less than what you owed.
• A payoff plan/workout agreement: You renegotiate the terms of your repayment so it's easier to pay off your card over time. As part of your agreement, the creditor may agree to waive late fees, reduce your interest rate, and/or reduce the monthly payment due. In exchange, you'd generally need to agree to comply with a specific payment schedule. With this type of plan, the card issuer may suspend your credit card account, meaning you can't use it until you've completed the agreement, or close it altogether. 
• A hardship plan: If you're facing a short-term financial hardship, your creditor may be willing to temporarily pause or lower payments. In many cases, you'll be required to agree to a structured repayment plan. The card issuer may suspend your credit card account until you've completed the hardship plan.

You may have heard of debt settlement companies that charge a fee to negotiate credit card debt for you. That may seem useful, but you don't need a debt settlement company to come to a deal with your credit card company. You can call, make a proposal, and go back and forth with the card issuer until you have an agreement.

What to do before negotiating credit card debt

Negotiating credit card debt is a last resort. Before you jump to that, see if there are any other options available.

Start by going over your monthly spending to see how much you could realistically put toward your debt. If you can reduce expenses and put together a plan to pay off your debt, that's a better way to go.

Find out whether debt consolidation or refinancing could be possible. This is more likely if you have a good credit score. Two popular options that can get you a lower interest rate, and possibly a lower monthly payment, on your credit card debt are:

• Balance transfer credit cards with a 0% intro APR
• Debt consolidation loans

If you can't pay off your debt and you need to negotiate, figure out what kind of deal you want to make with the credit card company. You could ask for a repayment plan with a lower payment amount, interest rate, or both. You could offer a lump sum payment to settle your debt, such as 25% to 50% of the amount owed.

The right choice depends on your financial situation. It's important to think about this before you contact your card issuer so you know what to request.

Does negotiating credit card debt affect your credit?

Negotiating credit card debt can hurt your credit, which is why it's best to consider other options first.

If you've missed any payments, your credit score will already have taken a hit. And credit card companies often won't negotiate credit card debt until you've been late on paying your bill.

Here are the ways negotiating credit card debt can affect your credit, depending on the type of agreement you reach with your card issuer:

• When you settle a debt, creditors generally report the debt as settled, rather than paid in full. This will be a negative mark on your credit report because it shows you didn't fully repay money you borrowed.
• If the card issuer cancels your credit card, it will reduce the available credit you have, which can increase your credit utilization ratio. It can also reduce your average credit account age. Both those factors can impact your credit score.

The good news is that after you negotiate your credit card debt and fulfill your end of the agreement, you won't have additional late payments or high balances recorded on your credit report. With no new negative information being posted, you can start to rebuild your credit.

Should you negotiate credit card debt?

When there's no reasonable way to repay what you owe, negotiating credit card debt can be a good solution. But you should think carefully about whether there are any alternatives available, especially if you haven't missed any payments yet. Credit card debt negotiation can work, but it will be years before you can qualify for the best credit cards or low-interest loans again.

Still have questions?

Here are some other questions we've answered:

• Credit Card Debt: What You Can Do to Get Out
• What Is Bankruptcy, and How Does It Work?
• Have Over $25,000 in Credit Card Debt? Here's How to Pay It Off