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Here's How to Negotiate Your Credit Card Debt with Your Lender

Learning how to negotiate credit card debt can be a useful debt relief tool.

Chris Scott

Contributing Writer at Tally

July 7, 2021

The average American carries $6,270 in credit card debt. If you have a balance on your credit cards, you are likely looking for ways to pay it down and get out of debt. Carrying debt on your credit card can harm your credit score and make it more difficult for you to secure lending in the future. 

We've recently discussed how to pay off credit card debt. Today, we're here to go over another debt management strategy: negotiating your debt with your credit card company. Credit card companies would rather be paid a portion of your outstanding balance than none at all, which is where the consumer has a bit of leverage. 

In this article, we cover everything you need to know about how to negotiate credit card debt. We start with the basics of debt negotiation and then dive into useful tips and suggestions that will help you negotiate with your lender.

Debt Negotiations: The Basics 

Credit card debt can be particularly tricky because of high interest rates (otherwise known as annual percentage rates, or APRs). Credit card interest is compounding, meaning the interest is added to your outstanding balance and you are then charged interest on the now-larger balance. Because of this, paying off credit card debt can be challenging. 

In addition, credit card issuers require you to make minimum monthly payments on your balance. If you miss the due date, you may incur late fees and penalty APRs, increasing your balance even more. 

Lenders know that getting out of debt is challenging, which is why they offer options like payment plans to help you chip away at your debt. But if the outstanding balance is large enough and your credit card company recognizes they may not receive the full amount of the outstanding balance, they may be willing to negotiate a lump-sum settlement. 

With this settlement, you pay an agreed-upon portion of the outstanding balance. The rest is considered a forgiven debt. 

So for instance, let's say that you have a balance of $10,000 on your credit card. You negotiate a debt settlement with your credit card company, agreeing to a lump-sum payment of $3,000. You pay this amount in an agreed-upon time frame. The remaining $7,000 balance is waived. 

One of the reasons credit card companies are willing to negotiate debt is because the debt is unsecured. Secured debts are those backed by collateral. For instance, a mortgage is backed by the equity you have in your home. Should you fall behind on payments, debt collectors can come after your assets. 

Credit cards, on the other hand, are generally unsecured debts (though there are some secured credit cards). Because the debt you have on a credit card is not secured, lenders can't come after your assets if you don't pay. They are more comfortable collecting a portion of your balance than not receiving anything at all. 

Lastly, if you can't negotiate a lump-sum payoff, there are other things that you can negotiate that would still be beneficial to your personal finances. For instance, you could negotiate a lower interest rate or a repayment plan. We'll explore that a bit more below. 

How to Negotiate Credit Card Debt 

There are two ways that you can go about negotiating credit card debt. You can either do so on your own or you can work with a debt settlement company. Debt settlement companies are professionals when it comes to debt negotiations but will charge you additional fees. 

Though every scenario is unique and dependent upon your personal financial situation, you may want to try negotiating a debt management plan with your credit card company first. If unsuccessful, then you can reach out to a debt settlement company to negotiate on your behalf as a last resort.  

Before you call your credit card company, know what you are going to say. If you have a history of making on-time credit card payments or have been a long-time customer, you'll want to bring these up in the conversation. You need to sell the reasons why you are a candidate for debt relief. Perhaps you’ve recently fallen on financial hardships and need assistance. Don't be afraid to make your case to your lender. 

The customer service phone number should be on the back of your card. When you call your credit card company, ask for the department in charge of collections and debt settlement. When you call, state clearly what it is you are looking for. Examples could include: 

  • A lump-sum payoff. 

  • A lower interest rate or a zero interest rate, known as a workout agreement.

  • A repayment plan.

  • A hardship program.

  • Waiving fees and APRs associated with late payments.

The first answer may be "No," and you may have to call back a few times before you are successful. But that does not mean you should get discouraged. Being persistent is necessary when you are negotiating credit card debt. 

Tips and Suggestions to Help When Negotiating 

Now that we have learned how to negotiate credit card debt, let's take a closer look at some of the tips and suggestions that could increase the likelihood of you being successful in your negotiations. 

Know how much you owe 

Before you begin calling credit card companies, you need to understand your financial situation, including your available credit and your current credit card balances. You should also know the interest rate you’re paying on each card. This will help you prioritize which debt is most important to negotiate. It will also make for a much clearer conversation during negotiations. 

Document everything 

Write down everything, including the names of the people you spoke with during your phone calls. If you find someone who is willing to negotiate, ask them to send you the terms and conditions of the deal in writing. The agreement you negotiate is a legally binding contract, so you need to know what you are entering into. 

Furthermore, the person you spoke with may one day leave the company, and your debts could accidentally be sent to a collection agency. Getting everything documented in writing will help you in the long run. 

Understand the downsides 

Though getting out of debt is helpful, there are some things you need to first understand. If you negotiate debt, your credit card company will likely cut your credit line, meaning you won't be able to use the card again until the full balance is settled. 

As a result, your credit utilization ratio may lower, which will show up on your credit report and could harm your credit score. Your credit card company may also report the settlement to the credit bureaus, which also has the potential of lowering your credit score

Lastly, there are tax consequences associated with credit card debt settlement. The IRS treats any forgiven debt greater than $600 as taxable income. So you'll owe more in taxes than you normally would. 

What to Do If You Can't Negotiate Debt 

If you are unsuccessful negotiating debt, there are a few other options available. Consider looking into balance transfer cards or debt consolidation loans as means of getting out of debt. 

Additionally, you may find credit counseling agencies who offer debt management programs for a small fee. These professionals can help you manage your debt and may be able to negotiate on your behalf. Note that these are different from debt settlement companies. 

Another option you have is Tally. Tally helps you pay off your credit cards in the quickest and most efficient way possible. The app is automated, and you'll always make your minimum monthly payments on time. While the app won't negotiate down the total amount you owe, it will help you pay it off. 

Negotiate Your Balances to Help Get Out of Debt 

If you carry a credit card balance that you just can't seem to get out from under, you may want to learn how to negotiate credit card debt with your lender. Because most credit card debt is not secured, lenders may be willing to negotiate to ensure they're paid at least some of what is owed. 

When negotiating, be sure to clearly state what it is you're looking for. Don't be afraid to keep trying if you’re unsuccessful after your first few attempts. Even negotiating down a little bit of your balance or lowering your interest rate can save you a lot of money in the long run. 

If you can't negotiate your credit card debt, instead try using a credit card payoff app like Tally.