How to Negotiate Credit Card Debt
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Negotiating debt with credit card companies can look different depending on your goal and situation. When an account is in good standing, you might be able to negotiate costs like an interest rate or fees to save money. Or, if the account has a history of missed payments, it could be possible to settle credit card debt for less than it’s worth.
Depending on the path taken, consequences may apply. That’s why it’s important to understand the difference between lowering the cost of debt and actually settling it.
As you’re exploring different options, here’s what you need to consider.
Negotiating lower costs vs. settling debt
When negotiating a lower interest rate, you’ll be dealing with your credit card issuer. To get interest reduced or fees waived as a courtesy, you generally need a good track record of on-time payments. One exception may be if you've encountered a financial hardship due to an emergency or unforeseen circumstance.
However, in the debt settlement process, you’re either negotiating with the original creditor or a third-party debt collection agency.
“When you settle debt, that’s a totally different ballgame,” says Leslie Tayne, founder and managing director at Tayne Law Group. “You cannot settle credit card debt if you are current on payments.”
And while negotiating lower APRs or fees directly with your issuer won't affect your credit, a debt settlement process could indeed have an impact. In addition to any payments you might have missed, an account recorded as “settled for less than the full balance” in your credit report can remain there for seven years from the date of the first delinquency, according to Margaret Poe, head of consumer credit education at TransUnion, one of the three major U.S. credit bureaus. It can make it difficult to qualify for affordable loan terms in the future.
How to negotiate with credit card companies
Before negotiating with a credit card company, explore all options for your goals. You might be able to get a better deal elsewhere. Or, at the very least, you’ll know about alternative options in case the issuer isn’t willing to negotiate.
1. Understand all of your options
With a history of on-time payments and good credit scores, you have more debt-payoff options — even outside of the obvious choices such as getting a side job, selling your stuff, borrowing from a loved one, etc. Here are a few to consider:
A credit card balance transfer
This option typically requires a good credit score of 690 or higher. If you can qualify, it allows the transferring of debt from a high-interest credit card onto one from a different issuer that has a lower interest rate. The ideal balance transfer credit card has no annual fee, a low balance transfer fee and a 0% introductory APR that offers a break on interest payments. You can transfer only as much debt as the new card's credit limit allows. To determine if it’s worth it, you’ll have to weigh the cost of current ongoing interest payments against the cost of the balance transfer fee to see which option saves the most money.
If you’re eligible for balance transfer offers through other issuers, you can potentially use that as leverage to get a current issuer to lower its ongoing interest rate.
A debt management plan
If your credit card debt is going to take three to five years to pay off, consider whether a credit counseling agency makes more sense. It can especially be helpful if you have several outstanding debts.
“If you’re feeling overwhelmed with it or stressed out, or if you have a lot of creditors and don’t want to have a separate conversation, you can just have one conversation with a counselor,” says Thomas Nitzsche, director of media and brand at Money Management International, a nonprofit financial counseling and education service.
These agencies charge a fee, but a counselor can determine whether you qualify for a debt management plan that allows you to combine several debts into one monthly payment with lower interest rates. You also get expert advice and a full review of your finances.
If you're facing a financial hardship — such as unemployment, an illness or other circumstances beyond your control — you can use an initial consultation with a credit counselor to compare the costs of a debt management program vs. a credit card hardship program. If available, a hardship program can provide lower interest rates or waived fees for a time. Another option might be to include debt from some credit cards in a debt management program and enroll others in a financial hardship plan, depending on terms. With either option, you’ll also have to consider the timeframe required to pay it off.
Other options
For larger debts, a personal loan, a home equity loan or line of credit, or a 401(k) loan could help you consolidate credit card debt, but they aren’t always advisable. Weigh the cost of getting a new loan before choosing this option.
2. Get organized
Regardless of which route you're taking, you'll want to get your information and documents in order. Even if you’re looking to lower a credit card’s interest rate by a few points, you'll need to know your current interest rate to bargain. It may also help to have points of comparison through other card offers or current credit cards in your possession.
Here are some details and documents that you may need to have access to, depending on the situation:
Credit card statements.
Revolving balances on each card.
Your APR, annual fees and other fees charged.
The terms and conditions.
Competing offers for leverage, if applicable.
Dates and proof of an event that caused financial hardship, if applicable.
If you’re struggling to make payments, review your budget and make any necessary tweaks. An updated budget can help you better understand the type of interest rate that is affordable to negotiate and the best course of action.
3. Set the stage
Boost your confidence by practicing a few times before making the call. Write down what you’re going to say so you can refer to it during the conversation. There are plenty of scripts online for inspiration, but it's important to tailor the one you're writing to your circumstances.
One general template: “I like using your card. I’d like to keep it, but your interest rate is really high compared with my other cards. Would it be possible to get this APR down a little so that it's more in line with those others?”
Before dialing the number on the back of your card, know what to expect:
Keep a pad on hand to write down the names of people you speak to and the time you spoke to them.
Plan to jot down the numbers of departments before accepting a transferred call.
Set aside time to place as many calls as it takes to get through to the right person.
If you’re dealing with financial hardship, Nitzsche also suggests being prepared for the possibility of the account being closed upon communicating the circumstances. But at this point, the priority is to pay off the account, not for it to remain open.
4. Call the issuer
Start by contacting customer service. Let the representative know what you're seeking and ask to speak to someone who can negotiate those terms. Front-line customer service representatives don’t typically have this authority.
Depending on your circumstances and the issuer, it might be possible to qualify for these types of options:
A courtesy interest rate or fee reduction
Some issuers may be willing to lower your interest rate by a few percentage points, according to Nitzsche. You might also be able to get annual fees or late fees waived. In these instances, it helps to have an account in good standing. It may feel intimidating to ask, but there are savings to gain by doing so — assuming you tend to carry a credit card balance.
For someone who has great credit, a history of on-time payments, a longtime relationship with a credit card issuer and a high interest rate, it’s worth asking for a reduction, according to Tayne.
“That’s worth a phone call no matter what,” she says. “It’s just part of your good financial health to reach out to your creditors and say, ‘I'm a good customer, I have great credit, what can you do for me?’”
A credit card hardship program, if you're struggling
Assuming the issuer offers one, a hardship program can lower interest rates or fees if circumstances beyond your control make you eligible. It's a plan with an established deadline that can include a short-term interest rate reduction, a forbearance agreement or a long-term repayment plan, depending on what the issuer is willing to offer.
It's best to alert the credit card issuer in the early stages of hardship when meeting payments becomes increasingly difficult. If you are able to negotiate, crunch the numbers to ensure the new terms are affordable. If you need to think about an offer, take note of who you spoke to and their contact information. This way, you can pick up where you left off.
5. Try to get the new terms in writing
A credit card issuer may be willing to offer new terms through a verbal agreement, but it doesn’t hurt to ask if you can get the new terms confirmed in writing.
With any new terms, ask the issuer what the consequences are if you accidentally miss a payment. Some issuers may revoke the new terms in this situation, so it’s helpful to know what to expect. You can guard against missed payments by setting up an automatic payment process.
“If you miss a payment, it is possible for the creditors to pull out and the terms go back to what they originally were, and then you're sort of back to square one,” Nitzsche says.
How to stay on track
Honor your new agreement with on-time payments to avoid potentially losing it. Make the most of your new terms by putting any savings from the deal toward the debt balance. You'll make even more progress by temporarily switching to a debit card or cash to avoid adding new purchases to the card.
Paying more than the minimum will also get you out of debt faster. With multiple debts, also consider whether the debt snowball or debt avalanche method can help you make a bigger dent in the balances.
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