Yahoo Finance Can You Really Negotiate Your Credit Card Debt?
Credit cards can be helpful financial tools in numerous ways, from enabling you to track and separate your spending, to assisting in building your credit rating. They can also be life rafts for emergency expenses.
[See: Best Credit Cards: Find the Right Card for You.]
The problem with credit cards? They can also cause you to drown in overwhelming debt. To regain control of your finances, you'll need to either find a way to pay your debt or work on negotiating it with card issuers. If you choose the latter route, it's important to keep a few things in mind.
Consider the Card Issuer's Point of View
Credit card issuers, like all companies, are interested in providing a product or service and making money. At the same time, they also know that things happen and people are not always able to meet their obligations. When considering the amount of money lost when a card user defaults, a card issuer's end goal is often to get as much money back as it can. At the very least, the issuer would like to see a return, even if it means no profit earned. In some cases, credit card companies are willing to negotiate with you and take a loss, since it costs more to pursue legal action than it typically does to settle. If faced with the prospect of a total loss or accepting a payment arrangement, most card issuers will work with you to draw up a more manageable payment schedule.
[See: What to Do If You've Fallen (Way) Behind on Your Credit Card Payments.]
Outline a Payment Plan
Decide how much you have to work with before you outline a payment plan or begin negotiating with the credit card issuer. Gather all your debts, figure out how much you have every month to apply toward debt and then divide it among your accounts. This will give you a timeline to follow and an idea of how much it will cost to regain control of your finances. Remember: Card issuers want to hear realistic numbers or they won't take your plan seriously.
Explore Payment Reduction Options
To aid in your negotiations, there are a few ways to reduce debt obligations. The method you use will depend on your cash flow and what you are able to pay.
Lump settlement. This is used when you want to pay the card off completely with one lump sum. Ideally, start by offering about half of the principal amount. The card issuer may not accept it, but you should set the bar low enough that negotiating will still end up in your favor.
Drop interest or late fees. If you plan to make payments, ask your creditor if it's possible to drop the accrued interest and late fees, ensuring that the payments you make actually apply to the balance. Note: This may not prevent the fees and interest from starting up again, but it does mean you will start with a lower amount.
Reduce the interest rate. Ask for a lower interest rate so that more of your payment applies to the balance. This is the method that most credit card companies prefer because they can still make a profit overall.
[See: How to Live on $13,000 a Year.]
Once you know how much you can afford to pay and what you have to work with, your negotiations can begin. When you make the call, be sure to ask for the collections department. This will save you from wasting time being transferred from one customer service representative to another. By avoiding unnecessary frustration, you are more likely to remain calm and friendly, upping your odds of success.
Be prepared to explain why you stopped -- or will soon stop -- making payments. The person on the other end of the line will be more receptive to hearing a valid reason for your failure to meet payment obligations. Begin with your best-case scenario and be prepared to negotiate. Above all, do not agree to a plan you can't fulfill, or you may lose the opportunity to negotiate again in the future.
Greg Go is the co-founder of Wise Bread, an award-winning personal finance and credit card education blog, where you can find tips on how to find the best travel credit cards.
