How To Negotiate Credit Card Debt: A Guide

Credit cards can be useful tools, or problematic if you've racked up more debt than you can afford to repay. Fortunately, there are options for dealing with credit card debt, including negotiating with your creditors for lower interest rates or better repayment options.

Why creditors are willing to negotiate

When consumers default on their credit card debt, there are a couple of consequences that can come up for the creditor:

1. They write off that debt, meaning they’re declaring the money uncollectible in exchange for being able to report it as a loss on their taxes
2. They sell the debt to collections, typically for pennies per dollar owed (read: it’s a massive loss)

“By negotiating the debt, the creditor may recover at least a portion of the amount owed, while the debtor can potentially avoid costly legal fees associated with debt collection. This process can ultimately provide a mutually beneficial outcome for all parties involved,” said Markia Brown, a certified financial education instructor and board-certified credit score consultant.

Negotiating your debt could also help you avoid things like wage garnishment and other negative marks on your credit report, such as closing a long-standing account and having a defaulted debt on your record. 

It can also help you secure credit in the future by preserving your credit score. And, of course, if you can negotiate the repayment amount down, that can help you get out of debt faster and more easily.

Steps to negotiate your credit card debt

1. Assess your financial situation: In order to come up with a solution that fits your needs, you need to understand exactly what kind of deal will be affordable for you based on your outstanding balance, interest rate, minimum monthly payment, as well as your income and other financial obligations. You’ll also want a backup plan, in case your original plan is rejected.
2. Review your options for negotiating: There are several options for negotiating, including hardship agreements, lump-sum settlements, and a workout agreement. (More on those later.)
3. Research your creditor's policies and negotiation practices: Some creditors may have policies in place that will limit your ability to negotiate, so familiarizing yourself with those beforehand can help you work within their practices to reach a good outcome.
4. Negotiate with your credit card company and explain your terms: Armed with all of the above information, you can contact your creditor’s debt settlement department, begin the negotiations process, and present your plan. Remember: Politeness is key here.
5. Take notes and make sure to follow up: There will likely be a lot of new information provided during negotiations, so you’ll want to take notes — especially regarding any repayment terms and potential penalties, and whether or not any follow-up is necessary to finalize things.
6. Finalize and record your agreement: Once you and your creditor have agreed to terms, you’ll be able to finalize the agreement, which may be accomplished via email or by signing a form. Be sure to make a copy of this and save it in an accessible format. This will help you avoid any potential hiccups later on.

3 options for negotiating debt settlements and agreements

If you have a large credit card balance, you might be able to negotiate a debt settlement or agreement with your card issuer to manage it. 

But before you contact your credit card company, it’s important to compare your negotiating options so you can decide which one is best for your financial situation.

Here are three strategies to consider when negotiating a debt settlement or agreement:

1. Hardship agreement

Best for:

• Long-time credit card users who have a good history with their card issuer
• Borrowers who need emergency, short-term assistance
• Borrowers who want to maintain a decent credit history

Several credit card companies offer hardship programs for borrowers facing financial difficulties. For example, you might be able to reduce your monthly payments, lower your credit card interest rate, have fees waived, or agree to a repayment plan that better suits your needs.

Keep in mind that assistance options vary by company as well as by your individual hardship. You’ll need to contact your card issuer to see what help is available to you.

Drawbacks:

• New cardholders might not be eligible
• Could extend the amount of time you remain in debt
• Might be hard to get back on your feet financially before a short-term relief plan ends

2. Lump-sum settlement

Best for:

• Borrowers whose credit card accounts have been delinquent for a long period of time
• Borrowers with enough cash to make a reasonable offer
• Borrowers whose credit has already been damaged

If you are quite far behind on credit card payments and don’t see a way out, you could consider asking about a lump-sum settlement. This is when you settle with your credit card company for a percentage or portion of your outstanding debt rather than the full amount.

How much you might be able to settle for will depend on your card issuer, how much you owe, how many payments you’ve missed, and how much you’re able to reasonably pay back.

Drawbacks:

• Third-party companies offering debt settlement could be running scams
• Low success rate unless you’re particularly far behind on payments
• Can be difficult to negotiate before your account is charged off and sent to collections

3. Workout agreement

Best for:

• Borrowers that haven’t missed a payment yet (or aren’t too far behind on payments)
• Borrowers who want to work with a credit counselor to come up with a repayment plan
• Borrowers who are facing long-term financial hardship but can afford to make at least partial payments each month

Another potential strategy is a workout agreement. With this option, you’ll negotiate a structured repayment plan with your creditors where you’ll pay off your credit card debt over a period of time.

You can also ask to modify your terms to make it easier for you to repay your balance in a shorter amount of time. For example, your card issuer might be willing to waive fees, lower your interest rate, or reduce your monthly payment.

Drawbacks:

• Can keep you in debt for a longer period of time, as you’ll still need to pay off your balances
• Card issuers might cut off access to your cards so you can no longer use them
• Loss of credit could negatively affect your credit score by increasing your credit utilization ratio

Other credit card debt solutions

While negotiating a settlement or other agreement with your card issuer might be a good choice in some cases, it isn’t right for everyone. Here are a couple of other options that could help you get out of credit card debt.

Balance transfer card

With a balance transfer, you’ll move your credit card balance from one card to another. Balance transfers are best used with a 0% APR introductory offer — which means you could avoid paying interest if you can repay your balance before the promotional period ends.

However, if you can’t pay off the transferred amount in time, you could get stuck with hefty interest charges. You'll also be assessed a balance transfer fee initially, which could be up to 5% of the amount you transfer and is added to your balance. If you’re considering this option, be sure to carefully read the fine print so there are no surprises down the line.

Pros

• Might be able to avoid paying interest through a 0% APR introductory period
• Some cards offer perks or rewards, such as cash back or travel points
• Could help you rebuild your credit if you keep the card open

Cons

• Typically charge a balance transfer fee from 3% to 5%
• Could be tempting to rack up a balance again
• Often not suitable for large amounts of debt

Compare: Debt Consolidation vs. Balance Transfer

Personal loan debt consolidation

Another option is using a personal loan to consolidate your debt — leaving you with just one loan and payment to manage. Personal loans typically range from $600 to $100,000 or more, depending on the lender.

Additionally, these loans often have lower interest rates than credit cards, which means you might be able to save money on interest and potentially pay off your debt faster.

Pros

• Could get a lower interest rate than what you’ve been paying on credit cards, depending on your credit
• Can consolidate multiple types of debt — for example, you could consolidate bills along with your credit cards
• Could have 1 to 7 years to repay your debt, depending on the lender
• Often suitable for large amounts of debt

Cons

• Could be hard to qualify if you don’t have good credit
• If you take out a personal loan with bad credit, you might not qualify for a better interest rate than what you’re currently paying
• Might come with fees, such as origination fees

Before you get a personal loan to consolidate credit card debt, consider lenders as possible to find the right loan for your situation. 

Check Out: Best Personal Loans for Debt Consolidation

Credit counseling

Credit counseling organizations are typically nonprofits, and they can help those in debt via professional advice on managing finances, either for free or at a low cost. That can include everything from helping you create a budget to providing educational workshops. 

They can also help you create a debt management plan (DMP), which can be especially helpful if you don’t feel comfortable creating one yourself. That way, they’d become an intermediary for your debt payments.

Pros

• Can provide access to DMPs
• Offers financial education beyond debt
• Doesn’t require credit to access

Cons

• You must have adequate income to qualify for DMPs
• Set-up or monthly fees are possible

Debt management plans

DMPs offer a strategic approach to repaying your debts, whether managing the plan yourself or seeking help from a credit counseling agency. With a DMP, you can consolidate multiple debts into a single monthly payment, and streamline your repayment process or negotiate affordable monthly payments with various creditors. 

This approach aims to help you regain financial control and find your way out of debt by making the repayment process more manageable.

A DMP can also lower your interest rates and fees associated with your debts, which can also help you save money in the long term. However, you may still be required to repay the full amount. These plans typically run from three to five years.

Pros

• Can provide a structured path out of credit card debt
• May help you save money long term
• Only requires one monthly payment

Cons

• For-profit debt management agencies can charge high fees
• You likely won’t be able to get new credit while in repayment
• Monthly payments are based on the timeline and debt amount

Bankruptcy

There are two types of bankruptcy: Chapter 7 and Chapter 13. Chapter 7 requires you to sell off some of your existing assets to pay a portion of your debt, and the rest is wiped out. 

Chapter 13 doesn’t require you to sell any assets, but you do have to come up with a repayment plan (ranging from three to five years.) Anything left after that term could be discharged. So both can let you get out of debt for less, but there are consequences.

Pros

• Filing stops all collections actions on your debt
• Can provide at least a partial debt discharge
• Isn’t contingent on credit to qualify

Cons

• You will still have to pay court and likely attorney fees to access bankruptcy
• Your credit will be negatively impacted for the next seven to 10 years
• It may require you to sell some of your assets or make payments for several years

Compare: Debt Consolidation vs. Bankruptcy

Help with credit card debt: Should you accept it?

There are also companies that offer to help with credit card debt. However, while credit card debt can feel overwhelming, it’s important to weigh the pros and cons of seeking assistance from these companies first.

Debt settlement companies

These are typically for-profit companies that will negotiate with your creditors on your behalf to work out a payment plan. In most cases, you’ll have to pay money into an escrow-type account, which they’ll use to make payments on your behalf.

These companies also typically charge a fee if they successfully settle even a portion of your debt — usually 15% to 25% of your total debt.

Keep in mind that debt settlement companies often ask you to stop making your monthly payments during the negotiation, which can lead to fees and damage to your credit, as well as possible legal action. Additionally, your card issuer might not even accept the settlement.

Check Out: Debt Settlement Pros and Cons

Read More:

• Current Personal Loan Interest Rates
• How Much Credit Card Debt Is Too Much?
• How To Pay Off Credit Card Debt
• How To Get a Debt Consolidation Loan With Bad Credit
• How To Stay Out of Debt
• Best Debt Consolidation Loans for Fair Credit
• Best Personal Loans for Good Credit