How can I negotiate with credit card companies?

Credit card debt can be overwhelming—especially if funds are tight. Often, the first option people think of is to settle debt through debt settlement services or debt relief providers. However, we suggest consulting a professional, like an attorney, who knows the ins and outs of credit card settlement laws.

A professional debt attorney can be an ally who protects you through the process of settling debts with creditors. Compared to debt settlement services and non-profit credit counseling programs, lawyers are legal experts who are familiar with common unfair practices and can advocate for your rights and protections as a consumer.

Types of credit card debt settlements

There are several types of credit card debt settlements that you can pursue if you’re struggling to pay off your debt. Here are the most common ones:

1. Lump-Sum Settlement: This is the most common type of debt settlement, where you negotiate with the creditor to pay a reduced amount in one lump sum. The creditor agrees to forgive the remaining balance. This type of settlement usually requires you to have access to a significant amount of money at once.
2. Workout Agreement: In this type of settlement, you negotiate with the creditor to modify the terms of your debt. This could involve lowering your interest rate, extending the repayment period, or waiving late fees to make the debt more manageable. Unlike a lump-sum settlement, you continue to pay off the full amount, but under more favorable terms.
3. Hardship Plan: Some creditors offer hardship plans for borrowers experiencing temporary financial difficulties. Under a hardship plan, your creditor may agree to reduce your interest rate, waive fees, or allow you to make smaller payments for a certain period. This plan is usually short-term and meant to help you get back on your feet.
4. Debt Management Plan (DMP): While not a settlement in the traditional sense, a DMP involves working with a credit counseling agency to create a plan for repaying your debt. The agency negotiates with your creditors to reduce interest rates and waive fees. You then make a single monthly payment to the agency, which distributes the funds to your creditors. DMPs typically last three to five years.
5. Debt Settlement through a Third Party: Some people choose to work with a debt settlement company that negotiates on their behalf. These companies may negotiate a reduced lump-sum payment or installment settlement.

How to Negotiate With Credit Card Companies

You can try to negotiate with credit card companies on your own without the help of an attorney. While we don’t recommend this route for everyone, here are the steps:

1. Understand what debt settlement is

Debt settlement is the process of negotiating your consumer debt down to less than you owe. You can attempt to settle personal credit card debt, student loan debt, auto loans, and personal loans. Debt settlement is different from credit repair, but successfully eliminating debt from your credit report may result in a favorable impact to your credit score after some time. Learn more about how debt settlement impacts your credit.

2. Stop using the credit card you are trying to settle

This is an important first step that’s pretty painful for a lot of consumers to accept. You must stop charging items on your credit card, and certainly do not take a cash advance or balance transfer. Make sure you stop using all of your credit cards from the bank/creditor you are trying to settle with. For example, if you have two American Express cards and one you want to settle and the other you are currently using, it is unlikely that the creditors will negotiate with you. Also, do not open any new cards, especially from the same creditors you are trying to negotiate with.

3. If you can’t pay your credit cards then stop

It is sometimes necessary to stop making payments on your credit card accounts because credit card companies will generally not resolve the balances if you do not show a hardship for being in debt. Trust me, they will be happy to continue accepting your minimum payment for the next 20 years since it includes a lot of interest and there is always a chance that you will continue to use your credit cards and rack up more debt.

4. Be patient

It will likely take some time before creditors will be willing to settle your unsecured debt. This can be as short as 90 days from the date of your last credit card payment, to maybe even several years for the creditors to start to negotiate a settlement or resolution of your credit card debt with you.

5. Be prepared for creditors calling about your delinquent debt

During this process, expect a lot of phone calls from creditors—even bordering on creditor harassment. While you want to do this on your own, it is a lot of work with a lot of problems. Working with a settlement law firm can help you and make sure that the collection agency is following the Fair Debt Collection Practices Act, which lays out when the credit card company can contact you, what they can and cannot say to you and other illicit debt collection practices. Make yourself familiar with these and the complaint process in case a creditor does not follow these rules so you know how to protect yourself from creditor and creditor harassment.

6. Negotiate with the credit card company

Firmly negotiate the terms with your credit card company. This may take a few attempts to get them to settle for less than the full balance if at all. Some creditors won’t work with you directly and will not give you the best debt settlement deals. Keep in mind that you want to keep track of who you spoke to and when, keep a notebook by the phone when talking to them so you can make notes of the conversations with your creditors. Know that many creditors will take a better deal if you agree to the settlement in lump sum, meaning you make one payment to the creditor but again a very experienced debt settlement firm can get interest free settlement terms making the resolution of your debts simply and easy for you. If you have a hardship, such as a loss of job or medical issue, make sure to explain that to the creditor to let them know you have a good reason for not being able to pay back the debt.

7. Get everything in writing

Whatever debt settlement or debt reduction agreement you agree on, make sure you get it in writing along with a schedule of payments.  Ask them for a settlement letter mailed and emailed to you with the terms of the settlement. This will include your name, the account number, the current balance, and settled amount, the payment terms (due dates and amounts) as well as who to make the payments to.

8. Don’t miss debt settlement payments

Make all the settlement payments on time and as agreed. Many settlements will void if you miss or are late with just one payment. Make sure you make all the payments on time so that you can get rid of your debt fast!

How Does Settling Credit Card Debt Impact Your Credit Score?

Settling credit card debt can have a significant impact on your credit score, usually resulting in a decrease. However, the long-term effects of a debt settlement should be positive overall. Here’s how it affects your credit:

1. Negative Notation on Credit Report: When you settle a debt, it typically appears on your credit report as “settled” or “settled for less than the full amount.” This notation indicates that you did not pay the full amount owed, which can be viewed negatively by lenders.
2. Lowering Your Credit Score: Since settling a debt means you did not fulfill the original credit agreement, it can lead to a drop in your credit score. The impact is more significant if you had a higher credit score before the settlement. The exact effect depends on your overall credit history and the amount of debt settled.
3. Reduced Access to Credit: After settling a debt, you might find it more difficult to obtain new credit. Lenders may view you as a higher risk because the settlement indicates that you struggled to repay your debt according to the original terms. If you do get approved for new credit, it may come with higher interest rates or less favorable terms.
4. Long-Term Credit Report Impact: A settled debt remains on your credit report for up to seven years from the date of the first delinquency. While its impact on your credit score will diminish over time, the settlement will still be visible to lenders and could affect your ability to obtain credit during that period.

Credit Card Debt Settlement Alternatives

If you’re struggling with credit card debt but want to avoid debt settlement, there are several alternatives that can help you manage and reduce your debt more effectively. Here are some common options:

1. Debt Consolidation Loan: This involves taking out a new loan to pay off your existing credit card debts. The goal is to consolidate multiple debts into one loan with a lower interest rate, making it easier to manage and pay off over time. Debt consolidation loans can simplify your payments and potentially save you money on interest, but they require good credit to qualify for favorable terms.
2. Balance Transfer Credit Card: A balance transfer credit card allows you to transfer high-interest credit card debt to a new card with a lower or 0% introductory interest rate for a set period (usually 6 to 18 months). This can give you a window of time to pay down your debt without accruing additional interest. Be aware that balance transfer fees may apply, and it’s important to pay off the balance before the introductory period ends to avoid high interest rates.
3. Credit Counseling: Seeking help from a nonprofit credit counseling agency can provide you with personalized advice and strategies to manage your debt. A credit counselor can help you create a budget, develop a repayment plan, and explore various options like DMPs or debt consolidation. Counseling is often free or low-cost and can be a valuable resource in managing your debt.
4. Snowball or Avalanche Method: These are DIY debt repayment strategies. The snowball method involves paying off your smallest debts first to build momentum, while the avalanche method focuses on paying off debts with the highest interest rates first to save on interest costs. Both methods require discipline but can be effective in gradually eliminating your debt.
5. Negotiate Directly with Creditors: Before considering debt settlement, try negotiating directly with your creditors. Explain your financial situation and ask for lower interest rates, a temporary reduction in payments, or a payment plan. Some creditors may be willing to work with you to avoid default and may offer hardship programs.
6. Bankruptcy: While often considered a last resort, bankruptcy can provide a fresh start if you are overwhelmed by debt and other options are not viable. Chapter 7 bankruptcy can discharge most unsecured debts, including credit card debt, while Chapter 13 involves creating a repayment plan. Bankruptcy has serious long-term consequences for your credit and should be considered carefully.