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How to Negotiate Credit Card Debt

Written by Allison Martin

Allison Martin is a personal finance enthusiast and a passionate entrepreneur. With over a decade of experience, Allison has made a name for herself as a syndicated financial writer. Her articles are published in leading publications, like, Bankrate, The Wall Street Journal, MSN Money, and Investopedia. When she’s not busy creating content, Allison travels nationwide, sharing her knowledge and expertise in financial literacy and entrepreneurship through interactive workshops and programs. She also works as a Certified Financial Education Instructor (CFEI) dedicated to helping people from all walks of life achieve financial freedom and success.

Updated May 21, 2023​

3 min. read​

Are you drowning in credit card debt? If you can’t afford to make the minimum monthly payment, you may be able to settle your accounts for less than what you owe.

But is this the best option, and how does credit card settlement actually work? This guide shares the answers to these questions and more, along with a recommendation to get help with settling your credit card debt.

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When Should You Consider Negotiating Your Credit Card Debt?

It’s a personal decision. However, many consumers negotiate credit card debt when the monthly payments become unbearable. Suppose you’re forced to choose between basic necessities, like food, clothing, shelter, and transportation, and credit card debt. In that case, it may be time to negotiate your credit card debt.

Or maybe getting out of credit card debt doesn’t seem practical because the interest rates are too high? Consequently, the minimum monthly payment is steep, and you can’t afford to pay much more every month, which means you’ll likely be haunted by credit card debt for several years to come. In that case, negotiating credit card debt could be a smart financial move.

How Negotiating Credit Card Settlement Typically Work

You can possibly avoid further damage to your credit profile and get back on track by negotiating your credit card debt. This arrangement allows you to pay the credit card company a fraction of what you owe to settle your account.

It’s possible to handle negotiations independently, but working with a debt settlement company could yield better results. More on that shortly.

What Percentage Do Credit Card Companies Usually Settle For?

It depends on the credit card company. However, it’s possible to settle your debt for up to 50 percent of the total outstanding balance.

The Types of Credit Card Debt Settlements

Credit card companies generally prefer one of the following settlement options:

Lump-sum Settlement

If you have a lump sum of cash on hand, you can request a settlement offer for that amount. If the credit card company accepts your offer, you will remit payment promptly.

In exchange, the remaining balance will be forgiven. However, the account will be notated on your credit report as “settled”, which could hurt your credit score if you weren’t already behind on payments.

You could also be on the hook for taxes on the forgiven amount. To illustrate, if you settle an $18,000 balance for $9,800, you could owe taxes on the $8,200 that is forgiven.

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Workout Agreement

The credit card issuer could reduce your interest rate, minimum payment, wipe out late fees and interest, or make other adjustments to your account under a workout agreement. Their end goal is to get you back on track, but they could also close the card.

If the latter happens, your credit score could take a hit. The utilization will likely increase if you have outstanding balances on other credit cards.

Hardship Agreement

A hardship agreement is a temporary solution your credit card issuer could offer to help you find relief. It’s also referred to as a forbearance option and could prompt the suspension or reduction of your minimum payment for a set period. The credit card issuer could also lower your interest rate until you get back on track.

In some instances, your credit health will be shielded from damage if the creditor agrees to suppress adverse credit reporting while the hardship agreement is intact. But this isn’t always the case, and some creditors will report negative payments.

Pros and Cons of Negotiating Credit Card Debt on Your Own

Before you commence negotiations with your credit card issuers, be mindful of the benefits and drawbacks.

Benefits of DIY Debt Settlement

  • Pay off credit card debt faster: You can put your credit card debt behind you and work towards rebuilding your credit and overall financial health by settling your credit card debt.
  • Save a bundle in interest: Negotiating a settlement means you won’t continue making minimum payments and racking up a ton of interest.
  • Avoid additional fees: Many debt settlement companies assess a fee between 15 and 25 of the settled amount, but you can avoid this added cost by negotiating with credit card companies on your own.

Drawbacks of DIY Debt Settlement

Unfortunately, there are disadvantages to debt settlement to consider:

  • Credit damage: Already behind on your credit card payments? Your credit score may have taken a hit from the late payments. If not, settling for less than you owe could ding your score as the lender will likely notate your account as “settled” in lieu of “paid in full”.
  • Tax consequences: If the credit card company forgives over $600 of your balance, you could be on the hook for federal income tax.

Still, debt settlement could be better for your financial health than bankruptcy.

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How to Negotiate Credit Card Debt

Follow these steps to negotiate your credit card debt:

1. Understand Your Total Credit Card Debt

Review your account statements of login to the online portal to confirm the outstanding balance and interest rate for each credit card.

2. Contact Your Credit Card Issuer

Call your credit card issuer and inquire about hardship options. The representative will transfer your call to the appropriate department, and they’ll review programs you could be eligible for. If none work for you, communicate your desire to settle the account. Also, state your offer and remain patient as negotiations could take a bit.

3. Get the Terms of the Agreement in Writing

When a settlement is reached, request the agreement in writing. It should outline the terms and conditions, along with the due date for the payment. Refrain from remitting payment for the offer until you receive the written document.

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