Credit Card Settlement — How To Negotiate Debt With Your Credit Card Company

Consumers facing financial challenges can reach a credit card settlement with their credit card company. Learn about the different options to settle your debt, as well as the steps to negotiate with your card company.

If your monthly credit card payment rivals your mortgage or rent, or if high-interest rates are making it hard for you to get rid of the debt, it might be time to negotiate with your credit card company.

When you find that it is almost impossible for you to cope up with your credit card debt you may tend to think that getting your debt or debts settled is the most viable option. However, this may not always be your best option, which is why you must know the truth behind and facts of credit card debt settlement.

To start with you must be well aware of the fact that when you opt for credit card debt settlement your credit score is bound to take a serious blow. This probably is the last thing in your mind.

In general, all that your credit card company wants is their money back and every penny of it. This is what you have agreed to your credit card company when you accepted the card and used it. You are therefore legally bound and liable to pay the entire amount that you owe to the card issuer including the charges you have incurred along with the fees and interest accrued in it. However, there may be a few exceptions to this rule.

  • In a few cases, your credit card issuers may realize that it is not realistic to expect that you will be able to pay every dime that you owe them.
  • They may also realize that chasing you to pay to them through a debt collection agency or taking you to the court may not be a worthy enough expense.
  • Apart from that, they may also feel that you may file for bankruptcy and they will lose the entire amount due to them. Since credit card debts are unsecured, the issuer cannot take away your car or house or garnish wages for recovering the amount due without any legal representation.

In such situations, credit card issuers may agree to waive a specific portion of your amount and settle your debt permanently.

Step 1: Understand how much you owe

The first step is to assess your credit card debt. If you have multiple credit cards, go through your statements and make an itemized list of how much you owe on each card and the interest rates.

Also, write down the customer service phone numbers. Now you’ll have all this information stored in one place once you’re ready to call your credit card companies.

Step 2: Explore your options

Before you pick up the phone, understand what credit card settlement options are available and how much you can afford to pay. Each choice can affect your credit scores, and some may have tax implications.

When you opt for credit card debt settlement, negotiation with your card issuer comes in to arrive at an agreement where the creditor will be willing to accept a lower amount than you actually owe to satisfy and settle the debt. This reduced amount may fall anywhere between 50 and 80 percent of the balance. The whole process plays out this way:

  • Your credit card issuer will consider you delinquent after you miss out on a couple of monthly bills and report it to the credit bureaus. Any late or non-payments will now reflect on your credit report. This will have a negative impact on your credit score and you will not be able to obtain any personal loans.
  • After negotiation, the issuer may agree to receive a sum much lower than the total amount due. However, you will have to pay it one-time in full or by the time deadline agreed upon.
  • In the end, the credit card issuer reports to the credit bureaus that you have settled your debt successfully and paid up.

However, this clear-cut scenario of debt settlement may not be the reality of it as suggested by the debt settlement ratings and other statistics.

Step 3: Understand the risks

Now you may wonder whether credit card debt settlement is an outright scam. Well, no. It is a legitimate process but it has a few potential pitfalls that you must know and certainly avoid.

  • To start with, you must know your rights as a consumer. The law says that you can either contact your credit card issuer directly or take help of a professional lawyer to negotiate on your behalf.
  • If you are successful in negotiating by you or through your lawyer, you must make sure that you get everything in writing before you send in the money or issue a check to your credit card company.
  • You may even work with a debt settlement company acting as an intermediary to negotiate on your behalf with your credit card company. The company will disburse the agreed-upon amount to your creditor every month.

However, everyone may not have the best interests at heart for you. Therefore, it is important that you avoid the less reputable businesses so that they cannot prey on you or feed you with false information. Here is some typical bad advice that you will encounter and avoid:

  • Need of Debt Settlement Company: No matter how strongly one insists that you will need a debt settlement company in this regard. It is not true. Often creditors will send mailers directly to you showing intent to settle your debt with no intermediaries.
  • Stop working: There may be even a few debt settlement companies with more dangerous intent and advice you that you stop working. Speaking or paying the creditors. This will backfire as interests and penalties will be added to your account. Creditors will start sending negative reports to the credit bureau and may even sue you for the amount outstanding.
  • Pay in advance: This is another advice that you should politely ignore for settlement assistance from the debt settlement company. According to the Federal Trade Commission, such practice is expressly and strictly forbidden. Companies are entitled to collect fees only when they have settled your debt and lowered it.

Moreover, few debt settlement companies will guarantee that everything will be fine and as planned once they take up your case. In reality, no intermediary can guarantee such things like preventing collection calls or knocking down your debt. They cannot even promise that your debt will be reduced to pennies on the dollar. It all depends on the cooperation and sympathy of your creditor.

Bottom Line

I understand the burden of having a ton of credit card debt. You'll want to decide which method you'll want to use to settle your credit card debt, whether it's through credit card settlement or using a debt settlement company. Before you consider declaring bankruptcy or paying a debt settlement company, you can try some ways to earn additional income if you need money fast or use money-saving apps to help you save more.

These strategies are tried and tested, or you can also consider getting a part-time job to make additional income or even a side gig can help.

If you have run out of options, then I hope these credit card debt settlement options can help you! Good luck.