How to Negotiate Credit Card Debt

Many Americans have credit card debt that they carry from month to month. According to the Federal Reserve Bank of New York, total household debt rose to $16.9 trillion in the last quarter of 2022.

Not being able to repay your credit card debt poses a number of risks to your financial standing, especially if you're facing other difficulties, such as a job loss. Missed payments and delinquent accounts are reported to credit bureaus, which can affect your credit history. Learning how to negotiate credit card debt both before and after you miss payments can help you get back on your feet and avoid negative impacts on your credit.

Keep reading to learn more about how to negotiate credit card debt, the pros and cons of doing so and whether you should work with debt settlement companies.

Is it possible to negotiate credit card debt?

Most people can negotiate credit card debt, regardless of their financial situation.

Negotiating credit card debt can help you extend deadlines or decrease what you owe, depending on the terms you're able to work out. Some companies may be willing to lower your monthly payments or interest rates. But negotiating credit card debt isn’t without its disadvantages as well. We discuss the pros and cons below.

Reasons to negotiate credit card debt

Paying off your debt can help improve your credit score in the long run, and contacting your credit card companies or debt collectors to pay off credit card debt can help you do so sooner. After a credit card debt negotiation, you might be able to reduce your monthly payments, your interest rate and other terms, which can decrease the amount you owe either temporarily or permanently.

Negotiating credit card debt can also prevent credit card companies from taking additional actions like handing over your debt to a debt collection company or even suing you. It may also help you avoid drastic financial measures, such as filing bankruptcy if you owe a large amount, which can have long-term negative effects on your credit.

If you have an excellent history of making your payments on time, there can still be some benefits of negotiating the terms of your credit card debt. If you’re in a situation where you want to negotiate debt while your finances look good, credit card companies may be more open to reducing your interest rates, which can reduce the amount of debt you will need to repay over time.

Reasons against negotiating credit card debt

There are some risks associated with credit card debt negotiation. Choosing to pay off credit card debt in a lump sum can cause a temporary reduction in your credit score because your total credit limit will likely decrease, especially if you are paying off old credit cards that are no longer usable. You may also need to pay taxes on any amount of debt that is forgiven.

Many of the risks associated with debt negotiation come from taking the advice of debt negotiation agencies that claim they can settle your debt for you quickly and easily.

In many cases, these companies will advise you to stop making debt payments while they attempt to negotiate with debt collectors. Instead, you give them the money, which they hold in escrow until they can settle your debt. However, there is no guarantee that the negotiation will be successful.

Therefore, you might end up with more debt after the process and still have to pay large fees to the agency.

You may want to consider other alternatives to credit card debt negotiation. The best debt consolidation loans can help you manage your debts by making it easy to make one monthly payment, a credit counselor may be able to help you create a plan to keep you on track with your debt payments, or you may be able to find ways to reduce your debt, such as using the best balance transfer credit cards to get better interest rates.

How to negotiate credit card debt in 4 steps

1. Confirm your total balance owed

Before you can negotiate down credit card debt, it’s important to understand how much you owe so that you have accurate, up-to-date records to work with. Take a few minutes to go through each of your credit cards to note the current balance and interest rates. You should also know your personal financial history. If you have a history of on-time credit card payments, you may have more room for negotiation on things like late fees.

2. Decide how you want to settle

Credit card companies typically offer a few different types of plans, including lump-sum payments, workout arrangements and hardship programs. The type of settlement that you choose will depend on your financial situation and how much you can realistically afford to pay each month. You may also be able to negotiate with debt collectors to reduce or waive your monthly payments while you’re facing financial hardships.

Lump-sum payment

In many cases, credit card companies and debt collectors will settle for a larger, one-time payment that is less than what you actually owe on your account. For example, if you owe $10,000 in credit card debt, the credit card company may accept $7,000. However, the credit card company could report the forgiven amount to the IRS as taxable income.

Another type of lump-sum “payment” you can negotiate with a credit card company is aimed at reducing the principal on your account. This type of plan forgives some of your debt without necessarily having to make a large payment. However, the reduced principal will still be subject to interest and fees.

Workout agreement

Workout agreements are repayment arrangements made with a creditor, usually when an account is in debt default. With a credit card company, this usually means a reduction of interest or waiving fees for a certain period of time, to help you pay down your balance. When the set time period expires (or if you fail to meet the terms of the agreement), the company’s regular terms and fees will likely come back into effect.

Keep in mind that if your account is closed with a workout agreement, it can reduce your credit score. However, this may not be an issue if your credit report has already been affected by missing payments. In addition, you may also face penalty APRs that go into effect after your workout arrangement ends, which means you will be paying more in interest than you were originally.

Workout arrangements may be most effective for people who have a good credit history and that have historically made most, or all, of their payments on time.

Hardship program

Hardship programs, or forbearance programs, occur when a credit card company agrees to reduce your minimum payment, interest or fees due to financial hardship. It may be a good option for people who are experiencing temporary financial setbacks, such as sudden job loss or an injury or illness. If you are experiencing any type of financial emergency, you should call your credit card company as soon as possible to ask them about potential hardship programs.

Each hardship program is tailored to your specific financial needs. For example, your reduced monthly payments may be based on your monthly income. However, some hardship programs may allow the credit card company to report negative information to credit bureaus, affecting your credit score.

3. Contact your credit card issuers’ debt settlement department

If you’re going to negotiate a debt settlement on your own, call your credit card company once you’ve gathered all of your information and decided which type of debt settlement you would prefer. While your credit card company’s customer service department may be able to help you with simple tasks such as how to dispute a credit card charge, there’s a separate department that handles debt collection and settlement. Ask to speak to this department, since its representatives are specifically trained in negotiating credit card debt.

Alternatively, you could choose to write a letter to negotiate a debt settlement. While it might take longer to hear back, a letter can give you an opportunity to organize your thoughts more cohesively, and keeping a copy of the letter is good for record-keeping. Include your name, contact information, account number, creditor information and an explicit message stating your settlement offer. Consider including an explanation of why you would like to negotiate, how much you’re willing to pay, when you plan to pay and what you would like to receive from the credit card company, such as waived fees or reduced interest.

4. Explain your situation and how you would like to rectify it

Explain your financial situation using factual evidence, such as how much your income has decreased or why you are facing financial difficulties. Remain clear about the exact settlement that you want.

You should also tell the credit card company if you plan to take additional action, such as filing for bankruptcy. Your credit card company may freeze or close your account if they are worried about your inability to pay back your debt, which could have an effect on your credit report. However, the company may be more open to negotiating before you have to take more drastic measures.

Helpful credit card debt negotiation tips

Here are a few tips to keep in mind while you negotiate to protect yourself.

Get your new terms in writing

If your credit card company agrees to a settlement or other type of negotiation, make sure you get your agreement in writing. Read over the agreement to make sure that you understand exactly what your plan entails. For example, double-check whether you can continue to use your card or not. Also, confirm whether the credit card company will report the agreement to the credit bureaus.

Don’t get discouraged if your first attempt fails

Keep calm and remain polite if you don’t automatically receive the settlement that you want or if the representative seems worn out for the day. Even if you're unable to negotiate debt with credit card companies on your first try, you should continue calling back once a week or so until you're happy with your terms.

Keep a record of all communications between you and the credit card company

It may take more than one phone call to have your settlement approved, so you should document each phone call and take notes about the conversation. Record the date of the communication, the name of the representative you spoke to and a summary of what was discussed.

If you make payments, record the date of each payment, how much you paid and how you made the payment.

To keep a better record, it might make sense to opt for written communication, whether via email or certified snail mail.

Should you hire a debt settlement company to negotiate on your behalf?

Debt settlement companies are for-profit businesses that work on your behalf to negotiate a settlement for your credit card debt so you don’t have to do it yourself. Often, the debt settlement company will tell you to stop making payments to your credit card issuers and send the money to them instead to build up an account used for lump-sum payments. Once the account grows sufficiently, the debt settlement company will contact your credit card companies to negotiate a lump-sum settlement. They use your money to make the payment and keep a portion of it as a service fee.

While you might be able to save some time by hiring a debt settlement company, this course of action comes with potential risks. Your credit card companies will likely report missed payments to the credit bureaus. Eventually, your account may be sold to a debt collector. These actions can have a substantial effect on your credit report.

In addition, there’s no guarantee that the debt settlement company will be successful in negotiations. Even though they may have more experience negotiating debt, your credit card issuer may not be open to negotiating. In that case, you’d be withholding credit card payments and paying the agency large amounts of money for nothing.

Another similar option is to work with a credit counseling agency. Credit counselors set up debt management plans to make it easier for you to pay off your debt. These may include some common debt payoff methods, such as debt snowball and debt avalanche plans.

Credit counselors negotiate credit card debt payoff plans with your credit card companies. Then, you will make a single monthly payment to the credit counselor, who will disperse the funds to each of your credit card companies according to your debt plan.

Unlike debt settlement companies, credit counselors will make payments monthly rather than withholding money until they see fit, which can help you build up a better payment history with your credit card companies. However, credit counselors usually charge a monthly fee that can add up over time.

Is credit card debt negotiation the right move?

Debt negotiation may not be the best move for everyone. The best way to pay off credit card debt will depend on your personal financial situation. For example, a credit card company may not be willing to negotiate a lump-sum payment if you are not already behind on your payments because they prefer receiving the full amount of your debt plus interest. However, they may be willing to help you with a hardship program for temporary strains on your finances.