How to negotiate credit card debt

When you’re struggling with credit card bills or have past-due accounts, negotiating your credit card debt might help you get back on track. You might be able to alter the repayment terms or even pay less than the outstanding balance and be done with the account — which would mean the creditor agrees you don’t owe anything more. 

“Negotiating credit card debt can help you escape a financial hole you’d otherwise be stuck in indefinitely. If your creditors are willing to work with you, you might be able to get your fees waived, your interest rate reduced, or the balance owed slashed to a fraction of the original debt,” says Leslie H. Tayne, a financial attorney who specializes in debt and is the founder and managing director of the New York-based Tayne Law Group, P.C. 

Credit card issuers generally won’t agree to settle for less than you owe unless you’re behind on payments and they don’t think you’ll repay the amount in full. At this point, you might have some leverage to negotiate. After all, the credit card company would prefer to get a small repayment than nothing at all. 

However, you have to be careful about working with debt settlement companies, which may turn out to be a scam or charge you excessive fees—or both. Forgoing payments in an attempt to get the credit card company to accept a lower settlement can hurt your credit score and lead to a larger tax bill. So, before trying to settle your debt for less than you owe, look into alternative ways to negotiate your credit card accounts.  

Why negotiate your credit card debt?

Negotiating your credit card interest rate or terms could make your payments more affordable and help you avoid missing a payment. Falling behind on credit card bills can have severe repercussions. Credit cards often have high interest rates, and your balance could quickly balloon as the interest compounds.

Missing payments could also result in late payment fees, losing promotional interest rate offers, forfeiting rewards, and a higher penalty annual percentage rate (APR). Your credit scores might also take a hit if you miss a payment, which can make qualifying for new loans or credit cards more difficult, lead to higher interest rates on credit offers, and result in card issuers lowering your credit limits.

If you’ve already fallen behind, you may still have opportunities to negotiate with your card issuers. They might agree to waive fees, lower rates, or work with you to get on an affordable payment plan. As a last resort, the issuer might agree to consider your account as paid off if you can repay a portion of the past-due balance. 

Types of credit card debt settlement and assistance 

Debt settlement can refer to various changes in your repayment amount or terms. Below are common options for getting help with credit card debt or settling accounts. However, card issuers aren’t obligated to offer you concessions, and the specific offers may vary depending on the card issuer and your situation. 

Temporary hardship programs

If you’re struggling with credit card payments because of a temporary setback, such as losing your job or an accident that keeps you from working, ask your card issuers if they can offer you a hardship program. These can last for a few months — potentially up to a year — and may reduce your interest rate or minimum monthly payment. 

Workout agreements

Similar to a hardship program, workout agreements may come with lower interest rates, decreased minimum payments, or other forms of assistance. However, unlike hardship programs, these are permanent programs and may only be available if you close your credit card. The agreements could have a fixed repayment schedule, requiring you to pay a specific amount or percentage of your balance each month over a set repayment period. 

Debt management plans

Rather than working directly with your credit card issuers, you may be able to work with a nonprofit credit counseling agency that can set up a debt management plan (DMP) with your credit card issuers. The credit counselor will try to get your card issuers to waive fees, lower your interest rates or minimum payments and bring past-due accounts current. 

DMPs also consolidate your debt, as you’ll make one payment to the credit counselor who will then pay your card issuers. You may have to close all your credit cards and refrain from opening or using credit cards while you pay off the DMP — generally, this takes three to five years. There’s also often a small enrollment fee and monthly fee for the counseling services, but the interest rate savings may lead to more savings overall. Additionally, need-based fee waivers are often available.

Settle for less than the amount owed

Settling a debt for less than the outstanding balance may be what most people think of when discussing debt settlement and negotiations. You might be able to settle the debt with a lump-sum payment or monthly payment plan. 

Once you pay the settlement amount, the card issuer cancels the remaining debt — the account balance goes to zero. However, you may have to include the canceled debt in your income when you file your annual tax return. Your credit reports may also show that the account was settled for less than the amount you owed, which could be worse for your credit scores than paying off a past-due account in full. 

How to negotiate credit card debt

If you’re dealing with a debt collector who bought your account from the credit card company, the collection agency might have paid pennies on the dollar for the debt. This is how they may be able to turn a profit even if they settle with you for less than the full amount. 

The negotiations come into play when you’re trying to find a settlement amount or repayment plan that works for both of you. Be sure to explain your circumstances — why you’re struggling to afford payments and how much you can afford. 

As with other negotiations, you could try to lowball a little. The card issuer might counter or try to find a middle ground. If you can come to an agreement that works, get the offer in writing and then have a plan for following through and settling the account. 

Playing hardball and dragging on the negotiations could help you get better deals. However, having accounts in collections can hurt your credit scores and keep you from qualifying for new credit accounts. Additionally, although credit cards are unsecured debt, the card issuer or debt collector could sue you. If they get a judgment, they may be able to garnish your wages or take money directly from your bank account to repay the debt. 

How debt settlement works

You can negotiate credit card debt and repayment plans directly with your credit card issuers. Alternatively, you could try working with a debt settlement company — sometimes called a debt relief or debt adjusting company. Debt settlement companies oversee the process and negotiate with your creditors on your behalf. In exchange, they charge you a fee for each debt they help you settle. 

When you work with a debt settlement company, it will often tell you to stop making credit card payments and to start setting aside money in a new bank account the company specifies. You’ll use the fund to make settlement offers, but you may also have to pay a monthly fee for the bank account. 

Some people have success working with debt settlement companies. Even after accounting for the fees, they’re able to save a lot of money by having a professional negotiate on their behalf. However, creditors might refuse to work with certain debt settlement companies, which could limit your options. You also have to beware of scammers who claim to help you settle debts but charge upfront or excessive fees without offering good service. 

Frequently asked questions (FAQs)