There may come a time when you’re paying almost as much in your monthly credit card payments as you’re paying for housing. Or, perhaps, those high interest rates render erasing your debt impossible. If that’s the case, you may want to negotiate with your credit card issuers. Here’s what you should know.
Determine Your Debt Load
The first thing you must do is figure out how much you owe, plus the interest rate you carry for each card. Make sure you write down customer service phone numbers.
Consider Your Options
Do this before reaching out to creditors, as well as figure out what you can realistically pay. Your basic choices include:
- A Lump-Sum Settlement. This entails seeing if your card issuers will accept less than what you owe in a one-time payment in full. Here, you must have leverage in the form of a chunk of available cash. If you don’t want to go the DIY route, contact a professional such as Freedom Debt Relief. There’s also a chance your creditors will allow you to shrink your obligation to your principal only.
- A Hardship Plan. If you’ve been seriously ill or lost your job, your credit card companies may be open to enrolling you in a hardship plan, which some issuers have. Also called a structured payment plan, such a plan may reduce your minimum payment, interest rate, and fees.
- Debt Management. These programs are offered, for a fee, by nonprofit credit counseling organizations. This strategy entails working with the organization to establish a financial plan, then depositing money monthly with it. The organization will pay your creditors according to the plan established. Note that to be eligible for debt management, you’ll have to be able to erase your debt in no more than 60 months.
- Debt Settlement. This is like a lump-sum settlement, except you’ll hire a company like FDR to do the negotiating for you. This may be your best bet since these negotiators have vast experience working with credit card companies.
Consider the Risks
Before you take on any of the above negotiation options, or learn how to stop debt collection calls, you should know what you’re signing up for, and what suits your financial circumstances.
If you go with a workout agreement, you’ll likely lose your credit line. This will also hurt your credit since the amount of available credit will drop and your credit utilization ratio will rise. Also note that forgiven debts of $600 or more may be subject to taxes.
With a hardship plan, your credit scoring may also be affected, depending on how the card issuer reports it to the credit bureaus. You should also note that you still must pay your debt, since it’s simply deferred – not forgiven.
Debt management plans don’t typically hurt your credit, but there’s a chance your credit reports may show your enrollment in a debt management program. If you miss a payment, though, you’ll likely be bounced from the program.
If you get your debts settled professionally, you’ll sustain credit issues early on since rather than paying creditors directly, you’re putting cash in a savings account to be used as leverage with credit card companies. However, once your company reaches a settlement – creditors usually go along because with bankruptcy they may get nothing – you can begin rebuilding your credit, which likely isn’t good right now anyway.
Call Your Card Issuers
If you’re going to go ahead and negotiate on your own, now is the time to put in a call to your card’s debt settlements or collections department. Be polite with your request and document each conversation. If at first you get a “no,” stick with it, perhaps asking for a supervisor, or even the supervisor’s supervisor.
Get It in Writing
Always get terms of your deal in writing since anything can happen. Maybe the person who gave you a verbal agreement has left the company or changed departments.
Knowing how to negotiate debt with your credit card company may be able to get you out of a world of financial trouble. However, there are times when experienced, professional help is in order. Again, for that, we recommend Freedom Debt Relief.
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