What to do before negotiating credit card debt
Negotiating credit card debt is a last resort. Before you jump to that, see if there are any other options available.
Start by going over your monthly spending to see how much you could realistically put toward your debt. If you can reduce expenses and put together a plan to pay off your debt, that's a better way to go.
Find out whether debt consolidation or refinancing could be possible. This is more likely if you have a good credit score. Two popular options that can get you a lower interest rate, and possibly a lower monthly payment, on your credit card debt are:
If you can't pay off your debt and you need to negotiate, figure out what kind of deal you want to make with the credit card company. You could ask for a repayment plan with a lower payment amount, interest rate, or both. You could offer a lump sum payment to settle your debt, such as 25% to 50% of the amount owed.
The right choice depends on your financial situation. It's important to think about this before you contact your card issuer so you know what to request.
Does negotiating credit card debt affect your credit?
Negotiating credit card debt can hurt your credit, which is why it's best to consider other options first.
If you've missed any payments, your credit score will already have taken a hit. And credit card companies often won't negotiate credit card debt until you've been late on paying your bill.
Here are the ways negotiating credit card debt can affect your credit, depending on the type of agreement you reach with your card issuer:
- When you settle a debt, creditors generally report the debt as settled, rather than paid in full. This will be a negative mark on your credit report because it shows you didn't fully repay money you borrowed.
- If the card issuer cancels your credit card, it will reduce the available credit you have, which can increase your credit utilization ratio. It can also reduce your average credit account age. Both those factors can impact your credit score.
The good news is that after you negotiate your credit card debt and fulfill your end of the agreement, you won't have additional late payments or high balances recorded on your credit report. With no new negative information being posted, you can start to rebuild your credit.
Should you negotiate credit card debt?
When there's no reasonable way to repay what you owe, negotiating credit card debt can be a good solution. But you should think carefully about whether there are any alternatives available, especially if you haven't missed any payments yet. Credit card debt negotiation can work, but it will be years before you can qualify for the best credit cards or low-interest loans again.