A 4-Step Guide to Negotiating Credit Card Debt
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Americans are carrying significant credit card debt from month to month. The typical balance is now $6,300, up nearly $1,000 from two years ago. And with the average card interest rate hitting 23%, that sum can spiral quickly.
The good news is negotiating credit card debt is possible. By negotiating your debt, your goal is to get better terms that make it easier to manage your debt, like lowering your monthly payment or reducing your interest rate. You may even be able to get the company to agree to a settlement where you pay less than you owe.
Read on to learn how to pay off credit card debt by negotiating with creditors yourself and whether hiring a debt relief company is a good idea.
1. Confirm your total balance owed
Before you can negotiate down credit card debt, it’s important to understand how much you owe. Take a few minutes to go through each of your credit cards to note the current balance and interest rates as well as your payment history. If you can demonstrate a history of on-time payments, you may have more room for negotiation on things like late fees or asking for a lower interest rate.
To ensure you’re not overlooking any credit lines you haven’t used recently, it may be helpful to pull copies of your credit report from one of three major credit bureaus (Experian, Equifax or Transunion).
2. Decide how you want to settle
Credit card companies typically accept a few different types of plans, including paying a lump sum, agreeing to what are called workout arrangements or enrolling in 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.
Lump-sum payment
A lump-sum payment is a large, one-time payment that is less than what you actually owe on your account. For example, if you owe $10,000, the credit card company may accept an immediate payment of $7,000 and then consider the debt paid in full. When they settle, creditors may accept between 30% and 80% of what you owe. The amount you’re actually able to negotiate will depend on the company's willingness to settle, the amount of money you owe and what’s happening in your life. Companies are typically more willing to settle if you can demonstrate financial hardship.
Another type of lump-sum “payment” you can negotiate with a credit card company is aimed at reducing the principal on your account. In this instance, if you owe $10,000, you might ask the company to reduce that amount to, say, $7,000. This type of plan reduces your debt without necessarily having to make a large, upfront payment. That said, the reduced principal amount will still be subject to interest and fees, so it could keep growing if you don’t pay more than the minimum each month.
There are two potential downsides to negotiating a lump-sum payment. The credit card company could report the forgiven amount to the IRS as taxable income, which would increase how much you owe in taxes. The company may also want to end its lending relationship with you and close the account once you pay off the negotiated amount, which could impact your credit score.
Workout agreement
A workout agreement means the creditor agrees to renegotiate the terms of your debt. 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.
Workout arrangements are usually most effective for people with good credit who have historically made most or all of their payments on time.
Forbearance or other hardship program
A forbearance or hardship program means that the credit card company agrees to reduce or suspend your minimum payment, interest or fees due to financial hardship. It may be a good option for people who are experiencing a temporary setback, such as sudden job loss or an injury. 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.
The programs are typically tailored to your specific financial needs. For example, your reduced monthly payments may be based on your monthly income. Make sure to ask whether the credit card company will report your missed payments to credit bureaus while you're in a forbearance program.
3. Contact your credit card issuers’ debt settlement department
Once you’ve gathered all your credit card information and decided which route you want to take, it’s time to get down to business. Call your credit card company and ask to speak to the department that handles debt collection and settlement. Alternatively, you could choose to write a letter to negotiate a debt settlement. This provides a nice paper trail of your communications, though completing this process via snail mail will usually take longer.
Regardless of whether you want to negotiate via phone or letter, you’ll need to be ready to share your name, contact information, account number and creditor information as well as an explicit message stating your financial situation and settlement offer.
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. Be very clear about the exact settlement that you want, including how much you’re able to pay, when you’re able to pay and what concessions you’d like, such as waived fees or reduced interest.
Helpful credit card debt negotiation tips
Going up against your credit card company can be intimidating and time consuming. Here are a few tips to boost your confidence and protect yourself as you negotiate.
Start negotiations before your debt is sold to a collection agency
Creditors typically send your debt to collections when it's 120 to 180 days late (roughly four to six months). Once this happens, the possibility of getting credit card relief is difficult. Collection agencies may pursue repayment more aggressively and even sue you in order to recoup their money.
Your credit card company may be more open to negotiating your debt when you're showing signs of financial trouble — especially if you previously had an excellent history of on-time payments — but before you’re exhibiting outright signs of delinquency, leaving the debt unpaid for months.
Don’t get discouraged if your first attempt fails
Negotiating credit card debt doesn't happen overnight — it may take time to convince a creditor to come to the table. Keep calm and remain polite if you don’t automatically receive the debt relief plan 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.
Get your new terms in writing
If your credit card company agrees to a settlement or other type of negotiation, make sure you get the 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 and whether the credit card company will report the agreement to the credit bureaus.
Keep a record of all communications
It may take more than one phone call to complete your negotiation, so you should document each call. Record the date of the communication, the name of the representative you spoke to and a summary of what was discussed. To keep a better record, it might make sense to opt for written communication, whether via email or certified snail mail.
If you make payments while you're in the process of negotiating with the creditor, record the date of each payment, the amount paid and how the payment was made.
Are there risks to negotiating credit card debt?
Negotiating to get credit card debt relief can affect your credit. The exact effect depends on how healthy your credit is to begin with and what exactly you end up negotiating. A temporary interest rate reduction, for example, likely won't have any effect. But negotiated terms that end in settlement will ding your score. So, too, can closing down accounts, which could decrease your available credit and even shorten your credit history.
Your credit may also take a hit if you're withholding payments during the negotiation process. Once you settle the debt, you may need to pay taxes on any amount of debt that is forgiven and the settlement can show up as a negative item on your credit report for up to seven years.
Should you use a debt relief company?
Debt relief companies — also called debt settlement companies — are for-profit businesses that work on your behalf to negotiate settlements for credit card debts and other unsecured debts — so you don’t have to do it yourself.
When you sign up, the debt relief company may ask you to stop making monthly payments to your creditors, which can cause your credit score to drop. In the meantime, you’ll start making a monthly deposit into an account to build up cash that will be used to pay settlements.
By law, a debt relief company may not charge you any fees — which typically total about 15% to 25% of your enrolled debt — until the company has reached a settlement and you have approved the terms. As each debt is resolved, your credit score should start to rebound,(though, like with the DIY method, the settled accounts will remain on your credit report for several years).
About 75% of debt relief clients have at least one account successfully settled within three years, according to a 2021 study commissioned by the industry trade group, the American Association for Debt Resolution. Overall, participants saw an average debt write-down of 32% on settled accounts, after accounting for fees.
You may be able to save time and reduce your overall debt by hiring a debt relief company, though there’s no guarantee they’ll be able to settle your accounts. If you do choose to go this route, you’ll want to do your research before enrolling with a specific company. The best debt relief companies will have transparent fees, strong customer reviews and years of experience.
Alternatives to credit card debt settlement
If you can still afford to make payments on your debt and simply need help getting started, enlisting the help of a credit counseling agency could be a smart move. In exchange for a monthly fee, these agencies can help you set up a debt management plan to help you pay off your loans, employing common payoff methods, such as debt snowball and debt avalanche plans.
Keep in mind: a credit counselor can ask for a lower interest rate from your credit card company as part of your debt management plan. But they cannot negotiate to actually lower, or settle, your debt. On the plus side, because you continue making monthly payments, this is usually better for your credit.
Other options to get out of debt include a debt consolidation loan or a balance transfer credit card. In both cases, the goal is to consolidate your debt into one new option with better terms. The key with these options is you’ll need a decent credit score to qualify for lower interest rates, and of course, you’ll still have to stick to paying it off.
Taylor DeJesus contributed to a previous version of this story.