Credit card debt is known as unsecured debt. It means that a credit card company can not take your assets if you fail to pay your debts on time. But if you extend your payment time, then the creditor might sue you.
Suppose you are facing financial challenges and you feel it impossible to pay back your credit card debt. In that case, negotiate with your creditor and make a settlement agreement.
But it depends on whether the creditor is willing to work with you or not. However, negotiating credit card debt also has consequences. It will negatively affect your credit score or, even worse, the closure of your credit card account.
Here are some steps to guide you on how to negotiate credit card debt:
Step 1: Understand How Much You Owe
The first step is to check the amount of your credit card debt pending. If you have several credit cards, review their statements and itemize each list.
In this way, you will learn the amount you owe to the creditor and the respective interest rate on each card. Also, note down the customer service contact numbers.
Once you have all information related to your pending debts, make a call to credit card companies.
Step 2: Explore Your Options
Check out the settlement options available and how much you can payback. Remember that your choice can negatively affect your credit scores, and you may face some tax implications. The following are some settlement options:
- Lump-Sum Settlement: Request a creditor to pay a set amount less than the total amount and forgive the difference. Make sure to ready the money because credit card companies do not wait once they have agreed to your request.
- Payoff Pan/Workout Agreement: Try to renegotiate the terms of your repayment. In this way, you will find it easy to pay off your debt over time. Moreover, the creditor may agree to waive the late fees, reduce the interest rate, or reduce the monthly installment.
- Hardship Plan: If you’re facing financial problems for the short term, your creditor may temporarily pause or lower the payment amount. In these cases, you will need a structured repayment plan.
Step 3: Understand The Risks
Negotiating a credit card debt settlement may also have some downsides. Make sure that you are aware of them before making any decision. When you negotiate a credit card debt, it can lower your credit score.
Moreover, before you sign any agreement, creditors may deactivate your account to stop you from using further the credit line. This process results in temporarily lowering your access to capital from other crediting sources.
There might be a case where other lenders will charge high-interest rates to you. It is because they might want to compensate for your increased default probability.
In some places, your insurance costs for different things, such as automobile insurance might increase. The severity of these results will be far worse, along with a bankruptcy filing.
Step 4: Call Your Credit Card Company
You can use a settlement company or do it on your own. If you want to negotiate on your own, call a credit card company. Politely explain your financial problems and request which option you want to choose.
The initial answer might be no, but be persistent and even try to look for someone willing to make a concession.
Step 5: Get Everything in Writing
Once someone at a credit card company is willing to negotiate with you, make sure to get the terms properly on the written agreement.
Sometimes, it happens that the credit manager makes a verbal promise but accidentally sends someone for collection. So to avoid these problems, put everything on paper.
When you do not have any way left to repay your debts, try to negotiate your credit card debt. It can be a perfect solution but think carefully before making any decision.