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Debt negotiations with credit card companies can vary depending on your goals and situation. When an account is in good standing, you may be able to negotiate a lower interest rate or fees to save money. Or, if the account has a history of missed payments, it may be possible to settle credit card debt for less than it’s worth.

Will Credit Card Companies Settle For Less Than You Owe

Will Credit Card Companies Settle For Less Than You Owe

Depending on the path taken, consequences may apply. That’s why it’s important to understand the difference between reducing the cost of debt and actually paying it off.

Understanding Debt Settlement Letters

When negotiating a lower interest rate, you will be dealing with your credit card issuer. In order to get an interest reduction or fee waiver as a favor, you usually need a good record of on-time payments. One exception may be if you have experienced financial hardship due to an emergency or unexpected situation.

However, during the debt settlement process, you negotiate with the original creditor or a third-party debt collection agency.

“It’s a whole different ball game when you’re settling debt,” says Leslie Tayne, founder and managing director of Tayne Law Group. “You can’t settle credit card debt if you’re making current payments.”

While negotiating a lower APR or fee directly with your issuer won’t affect your credit, a debt settlement process can actually have an impact. In addition to any payments you may have missed, an account marked as “settled for less than the full balance” on your credit report can remain there for seven years from the date of the first delinquency, according to consumer credit chief Margaret Poe. Education at TransUnion, one of the three major credit bureaus in the United States. It may be difficult to qualify for affordable credit terms in the future.

Credit Card Debt Passes $1 Trillion Record: Doable Ways To Pay It Off

Before negotiating with a credit card company, explore all options for your goals. You may be able to get a better deal elsewhere. Or, at the very least, you will know about alternative options if the issuer is unwilling to negotiate.

With a history of on-time payments and a good credit score, you have more debt-paying options—even outside of the obvious choices, like taking a part-time job, selling your stuff, borrowing from a loved one, and so on. Here are a few to consider:

This option usually requires a good credit score of 690 or higher. If you can qualify, it allows you to transfer debt from a higher interest credit card from another issuer with 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 gives you a break on interest payments. You can only transfer as much as the new card’s credit limit allows. To decide if it’s worth it, you’ll have to weigh the cost of the current interest payments against the cost of the balance transfer fee to see which option will save you the most money.

Will Credit Card Companies Settle For Less Than You Owe

If you qualify for balance transfer offers through other issuers, you can use that as leverage to get a current issuer to lower its prevailing interest rate.

How Do I Negotiate A Settlement With A Debt Collector?

If it takes three to five years to pay off your credit card debt, consider whether a credit counseling agency makes the most sense. It can be especially useful if you have several outstanding debts.

“If you feel overwhelmed or stressed or you have a lot of creditors and don’t want to have a separate conversation, you can have one conversation with a counselor,” says media director Thomas Nitsche. and the brand of Money Management International, a not-for-profit financial consulting and education service.

These agencies charge a fee, but a counselor can determine if you qualify for a debt management plan that allows you to consolidate multiple loans into one monthly payment with lower interest rates. You also get expert advice and a complete review of your finances.

If you’re facing financial hardship — such as unemployment, 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 may offer lower interest rates or waive fees for a period of time. Another option might be to include debt from some credit cards in a debt management program and others in a financial hardship plan, depending on the conditions. With any option, you also need to consider the time frame in which you want to pay it off.

This Is How Credit Card Companies Hauled In $176 Billion In 2020

For larger debts, a personal loan, home equity loan or line of credit or 401(k) loan may help you consolidate credit card debt, but they are not always appropriate. Weigh the cost of getting a new loan before choosing this option.

No matter which route you take, you’ll need 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 negotiate. It can also help you make comparisons across other card offers or current credit cards you own.

Here are some details and documents you may need access to depending on the situation:

Will Credit Card Companies Settle For Less Than You Owe

If you’re struggling to make payments, review your budget and make any necessary adjustments. An updated budget will help you better understand the type of interest rates you can afford to negotiate and the best course of action.

How To Decide Your Credit Card Debt Relief Strategy

Build your confidence by practicing a few times before making the call. Write down what you are going to say so that you can refer to it during the conversation. There are plenty of scripts online for inspiration, but it’s important to tailor what you write to your situation.

One common template: “I would like to use your card. I would like to keep it, but your interest rate is really high compared to my other cards. Would it be possible to lower this APR a bit so it’s more competitive than others?”

If you’re dealing with financial difficulties, Nitzsche suggests preparing for the possibility of account closure by communicating the circumstances. But in this case, the priority is not to keep the account open but to pay it.

Start by contacting customer service. Tell the agent what you are looking for and ask to speak to someone who can discuss the terms. Frontline customer service agents typically do not have this authority.

Finding Credit Card Debt Relief In 2023

Depending on your circumstances and issuer, you may be eligible for these types of options:

According to Nitzsche, some issuers may be willing to lower your interest rate by a few percentage points. You may also be able to waive annual fees or late fees. In these cases, it helps to keep an account in good standing. It may sound intimidating, but there are savings to be had in doing so—assuming you tend to carry a credit card balance.

For someone with a large loan, a history of on-time payments, a long-standing relationship with a credit card issuer and a high interest rate, Tane says, it’s worth asking for a reduction.

Will Credit Card Companies Settle For Less Than You Owe

“Whatever it is is worth a phone call,” she says. “Approach your creditors and say, ‘I’m a good customer, I have a lot of debt, what can you do for me?’ Saying that is only part of your good financial health.

Can’t Pay Your Credit Card Bills This Month? What You Can Do

Assuming the issuer offers one, a hardship program can lower interest rates or fees if circumstances beyond your control make you eligible. It is a plan with an established term that may 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 is best to alert the credit card issuer early in the difficulty when meeting payments become increasingly difficult. If you can negotiate, crunch the numbers to ensure the new terms are affordable. If you want to think about an offer, take note of who you talked to and their contact information. This way, you can pick up where you left off.

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 confirm the new terms in writing.

With any new terms, ask the issuer what the consequences are if you accidentally miss a payment. Some issuers may revoke new terms in this situation, so it’s helpful to know what to expect. You can protect yourself from missed payments by setting up an automatic payment process.

How Will Debt Settlement Affect My Credit Score?

“If you miss a payment, the creditors can withdraw and the terms can go back to where they were before, so you’re back to square one,” says Nitzsche.

Honor your new contract

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