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How to Negotiate Credit Card Debt Like a Pro

Rebecca Safier • June 4, 2024

A man consolidating his credit card debt.

Watching the balance on your credit card statement grow each month can be stressful. Interest grows, turning what was once a manageable amount into a mountain of debt.

If you’re struggling with credit card debt, you may have options for negotiating with your credit card company. These could include getting on a payment plan, reducing your interest rate, or settling your debt for less than you owe.

Read on to learn how to negotiate credit card debt so you can regain control of your financial life.

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Reasons credit card companies settle debt

Credit card companies are in the business of making money, but they’re also realistic about recovery. When customers face financial hardship, it’s not guaranteed that they’ll repay their debt. Rather than losing out completely, creditors might agree to settle the debt for a lesser amount.

Settling debt can be pragmatic for credit card companies since credit card debt is unsecured. This means that credit card debt isn’t backed by collateral like homes or cars, so companies have limited options for collection if you default. Legal action is a possibility, but it can be a costly hassle.

Creditors can also sell the debt to a collection agency, but they might only make back pennies on the dollar.¹ By agreeing to a settlement with you, a credit card company might recover more money than it would otherwise.

Understanding credit card settlement processes

The journey to settling credit card debt starts with knowing the process. First, you’ll need to determine if settlement is the right path for you – this typically means you’ve already missed some payments and are experiencing financial hardship that makes full repayment unlikely. If you haven’t missed payments yet but are in danger of doing so, you might have other options, like a payment plan or a reduction in your interest rate.²

Once you’ve decided on the best path forward, reach out to your creditor to discuss your situation. Be prepared with a realistic proposal based on what you can afford. If the creditor senses your sincerity and its financial records back your claims, they might offer a settlement agreement.

This agreement should detail the new balance and any conditions tied to the settlement. Make sure to get any agreement in writing so you have documentation of the arrangement.

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Lowering costs vs. settling debt: What’s the difference?

Reducing the costs associated with your credit card and settling your debt are two distinct paths.

Lowering costs involves negotiating lower interest rates or waiving certain fees to make the debt more manageable without reducing the principal amount that you owe. This approach can offer temporary relief and is best for customers who expect their financial situation to improve.

Settling debt, on the other hand, involves closing out your credit card debt by paying back a lower amount than what you owe. It’s a more drastic measure for those facing severe financial distress and offers a faster but potentially more impactful solution in the long run.

Settling credit card debt can harm your credit score, but chances are your credit has already taken a hit if you’ve been missing payments on your card.

Settling credit card debt: Options to consider

As you think about how to negotiate credit card debt, here are some options that may be available to you:

  • Hardship agreement: If you’ve lost your job or experienced another temporary setback, your creditor might offer a “hardship agreement” that reduces payments, lowers your interest rate, or stops late fees for a period of time.³
  • Forbearance: Similar to a hardship agreement, forbearance is usually a temporary offer. It can let you pause payments on your credit card while you work on financial recovery.
  • Lump-sum settlement: If you’ve already missed payments on your debt (or it has been sent to collections), you may be able to negotiate a lump-sum settlement to close out the debt. In this case, the creditor will accept a lower amount than what you owe in exchange for closing the debt and your account. While credit card companies will forgive debt in some cases, you might have to pay taxes on the forgiven amount.²
  • Workout agreement: If you’re falling behind on payments, your lender may agree to a workout agreement, which would permanently alter the terms of your cardholder agreement. For instance, the company might waive late fees or reduce your interest rate. With a workout agreement, the lender may also reduce your credit limit, so you won’t be able to charge as much to your card.
  • Debt management plan: If you work with a credit counseling agency, that agency may negotiate a debt management plan with your card issuer. This usually involves making monthly payments to the agency, which will send the payments to your credit card company on a modified repayment plan. You’ll have to pay fees to work with a credit counseling agency, which you may avoid if you negotiate with your credit card issuer directly.²

Steps to succeed at credit card negotiations

Learning how to negotiate credit card debt can help you find the solution you’re looking for. Here are steps to help you succeed:

  1. Learn about your options: Understand the various debt relief approaches, like settlement and payment plans, and how they fit your situation.
  2. Verify the total amount you owe: Ensure that all the charges on your credit card statement are correct and that you fully understand your debt size. Take note of your interest rate and fees, as well.
  3. Organize your financial information: Prepare documentation that proves your financial hardship, like bank statements.
  4. Prepare for negotiation: Plan your approach, decide on what you’re asking for, and prepare to negotiate. Speak clearly and respectfully, as a negotiator is more likely to help you if you don’t sound aggressive about your request.
  5. Contact your credit card issuer: Start the negotiation dialogue with your creditor. Customer service will transfer you to the appropriate department so you can speak with someone who can help. You can follow up with multiple calls until you’ve reached an arrangement that works for you.
  6. Secure the new terms in writing: Once you’ve negotiated your debt, make sure that the company provides documentation of your agreement.

Deciding whether to negotiate your debt

While the answer to “Can you negotiate credit card debt?” is yes, this approach may not be right for everybody. Negotiating credit card debt is a big decision, so assess your financial situation carefully before you proceed.

If paying your minimum payments is becoming increasingly difficult, negotiation might be worth exploring. Consider your long-term financial stability and any potential impact on your credit score.

Credit impact of settling credit card debt

Settling your credit card debt can provide relief, but also affects your credit score. When a debt is settled for less than the full amount, it is reported to credit bureaus.

While this can negatively impact your score in the short term, it may be preferable to the potential long-term damage of unchecked debt. Missing payments and having a high credit utilization can also drag down your score, so settling your debt sooner rather than later may help you along the path to credit recovery.

Alternatives to credit card debt settlement 

If settling your credit card debt doesn’t seem right for you, consider the following alternatives for managing this debt:

  • Debt consolidation loan: Loans for debt consolidation may offer lower interest rates than credit cards have. You can take out a lump-sum amount and use the proceeds to pay back your credit card balance. Then, you’ll pay back your debt consolidation loan over a set period of time, usually with fixed monthly payments. If you explore this strategy, shop around with multiple lenders to find a loan with the lowest rates and fees.
  • Credit card balance transfer: Another option is transferring your credit card balance to another card with a 0% APR balance transfer offer. If you have good enough credit to qualify for one of these cards, you may get 12 months or longer of 0% APR to pay off your balance. Balance transfers do come with fees, though, which may equal 3% to 5% of the transferred amount.

As you navigate the complexities of credit card debt, remember that the goal is to regain control of your financial health, not just to clear the debts. While debt settlement may offer a solution, compare all your options to determine the best path forward for you. These strategies for paying off credit card debt can also help you move closer to a debt-free life.

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¹ Information from Equifax's "What to Know When Your Creditor Sells Your Debt to a Collection Agency" as of May 10, 2024: https://www.equifax.com/personal/education/debt-management/articles/-/learn/how-debt-is-sold-to-collection-agencies/

² Information from Federal Trade Commission's "How To Get Out of Debt" as of May 10, 2024: https://consumer.ftc.gov/articles/how-get-out-debt

³ Information from Take Charge America's "What Are Credit Card Hardship Programs?" as of May 10, 2024: https://www.takechargeamerica.org/what-are-credit-card-hardship-programs/

⁴ Information from TransUnion's "Forbearance and Your Credit" as of May 10, 2024: https://www.transunion.com/blog/financial-hardship/forbearance-and-your-credit

⁵ Information from Lexington Law's "How to Negotiate Credit Card Debt" as of May 10, 2024: https://www.lexingtonlaw.com/blog/credit-cards/negotiate-credit-card-debt.html

⁶ Information from Experian's "What Is a Balance Transfer Fee?" as of May 10, 2024: https://www.experian.com/blogs/ask-experian/what-is-a-balance-transfer-fee/

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