If you’re overwhelmed with credit card debt and only able to make minimum payments each month, consider negotiating with your credit card company. The process involves getting a clear picture of your financial health, coming up with a plan, and settling your debt at a lower rate.

If you have credit card debt, you’re not alone. Total household debt surged to over $17.5 trillion in Q4 2023. The delinquency rate for credit cards also rose to 8.5%, so you're not alone in finding it challenging to pay off your debt. If you're proactive, you can avoid charge-offs and protect your credit score. More importantly, paying off your debt can reduce your financial stress. 

What might surprise you is that if you can negotiate with your credit card company, you may be able to reduce your rate and get out of credit card debt faster. While it's a good idea to work with a professional, you can still create a payment plan and negotiate with your credit card issuer on your own.

10 Steps To Negotiate Credit Card Debt

Negotiating credit card debt successfully requires planning. Follow these six steps to negotiate a settlement.

1. Understand Your Credit Card Debt Situation

Before you attempt to negotiate a credit card debt settlement, it's important to assess what you owe on which cards. Determine if you have any overdue payments and the total amount of debt you currently owe. 

Take note of the fees charged by the card company. If you have a history of paying your credit card bills on time, you may be able to get certain fees waived. Make a list with all this information so you can work out how much you can afford to pay to settle your accounts or towards a payment plan.

Assessing your debt situation will also help you decide if negotiating a settlement is the right option for you. If not, there are several other debt relief solutions to try, such as debt consolidation loans and debt management plans offered by credit counseling agencies. As a last resort, you may even consider bankruptcy.

Example:

Let’s say you have three credit cards with outstanding balances. Take a sheet of paper and create a list with details, such as outstanding balance, APR, minimum monthly payments, late fees, and how many months you’re past-due on each card. 

2. Calculate Your Debt-to-Income Ratio

Your debt-to-income ratio (DTI) is your monthly debt payment in comparison to your monthly income. This ratio is one factor that lenders use to determine your ability to manage monthly debt payments.

To calculate your DTI, divide the total amount you're currently paying each month towards debt by your gross monthly income and multiply that number by 100. 

Example: 

Let’s say you pay $2,000 each month towards your debts. Your monthly gross income is $5,500. Calculate your DTI by dividing your debts ($2,000) by gross income ($5,500). Multiply the resulting number (0.36) by 100 to get your DTI ratio (36%).

Calculating this will help you understand your financial standing. It will also help you determine how much you can comfortably pay toward your credit card debt each month. Ideally, your DTI should be lower than 36%.

3. Check Your Credit Score

Request a free copy of your credit report to check your current credit score and take a look at your credit history. You can request a copy from all three credit bureaus for free. Knowing your credit score will give you a better understanding of how to approach your negotiations.

Not only that, but it's important to verify what's being reported on your credit report, including balances owed and previous debts. You can also look for inaccurate information. Since this is the same data that your creditor is seeing, you want to ensure you're both looking at an accurate picture of your credit score before pursuing negotiations.

4. Understand Your Credit Card Company’s Policies

Learn more about your credit card company’s policies and procedures for negotiating debt. Research the options they offer to consumers facing financial hardship. There are several different types of agreements you could negotiate with your card issuer. 

Some of the most common options include:

  • Lump Sum Settlement: You offer to settle your account for a fixed amount that's lower than your full balance.
  • Payoff Plan/Workout Agreement: You negotiate the repayment terms to make it easier for you to pay off your debt. Your credit card company may agree to reduce interest rates or waive fees.
  • Hardship Plan: If you're facing financial hardship, the company may temporarily lower or pause payments if they offer a hardship program. 

Example: 

You research your credit card company’s policy and discover that they offer a hardship plan and may accept a lump sum settlement. Since you aren’t yet delinquent on your payments and are facing a temporary setback, you can request for a hardship plan.

5. Know Your Rights as a Consumer

As a consumer, you have several rights. Familiarize yourself with the Fair Debt Collection Practices Act (FDCPA) and consumer protection laws. According to the act, a debt collector can't use misleading, deceptive, or false means to collect your debt. 

It isn’t uncommon for a collection agency to use unfair practices. Knowing your rights will help you understand what protections are available to you when dealing with debt collectors. 

6. Contact Your Credit Card Company

Once you have a clear idea about your finances, the next step is to get in touch with your credit card company so you can explain your situation to them. In most cases, you'll speak to a customer service representative first when you call the number on the back of your credit card. 

Ask to speak to a supervisor or a manager. The credit card company may also have a dedicated department to serve the needs of consumers facing financial hardship. Be honest and transparent, and make your expectations known without hesitation. 

7. Negotiate a Debt Settlement

Once you've followed the points listed above, it’s time to learn how to negotiate credit card debt with your financial institution. Card issuers are likely to agree to two main types of settlements.

Offer a Lump Sum Settlement

A lump sum settlement means settling your debt for less than the total amount you owe. In some cases, this may be an attractive option for your card issuer, especially if they feel it would be difficult to recover the remaining amount. 

If you have late payments on your account and are unable to make the minimum monthly payment, your credit card company is more likely to accept the settlement instead of losing the full amount. With this technique, you can offer to settle your debt with one large lump-sum payment. 

Example: 

If you owe $5,000 on your credit card, including interest and fees, you may ask the credit card company to accept $3,500 to settle your account in full. If they accept, the remaining balance will be forgiven. Keep in mind you may also have to pay taxes to the IRS on the forgiven debt.   

Negotiate a Payment Plan

If you're willing and able to make regular payments each month, you can negotiate with your credit card company to accept a repayment plan. Your lender may be willing to reduce your interest rates, waive fees, or negotiate other favorable payment terms.

Your creditors may consider a few factors when they negotiate a payment plan with you:

  • Your available credit
  • Your total amount owed
  • Your credit history

If you've been a client for a long time and have been making consistent credit card payments, you may be able to negotiate lower interest rates or monthly payments based on your good standing with the company.

8. Consider Working With a Debt Settlement Company

If you're not comfortable with negotiating debt on your own, consider working with an experienced debt settlement or debt relief company. These companies can negotiate a settlement with your credit card company on your behalf.

Teresa Dodson, a debt expert and CEO of Greenbacks Consulting LLC, encourages consumers to work with a reputable debt settlement company. “Can you negotiate your debts on your own? Yes. But hiring a debt professional is a much better option due to experience and expertise to get the very best results.”

Research Debt Settlement Companies

In some cases, it may be best to work with a professional. When researching debt settlement companies, it's important to ensure that they're reputable and have a good track record of success. Check online reviews and learn more about the services they offer. Only work with a company that is upfront about its process, practices, and fees.

Understand the Risks and Costs

Before you sign up with a debt settlement company, it's important to understand the risks and costs associated with the service. Debt settlement can help you save money and time, but there are also a few risks.

First, you’ll need to stop making payments to your creditor so you can start saving for a lump sum settlement. Missed payments can lower your credit score. You’ll also need to pay fees to the debt settlement company, which can be substantial if you haven’t compared your options. Finally, any debt that is forgiven is liable to be taxed as income.

9. Monitor Your Credit Report and Score

Your work is still not over once you've successfully negotiated your credit card debt. You’ll need to keep an eye on your credit score so you can spot changes. Debt settlement will be reflected in your credit report, so you’ll have to check if it's accurate.

Your credit scores may also likely take a hit if it impacts your credit utilization. When you stop making payments, your credit card balance will continue to rise because of late fees and additional charges.

Dispute Any Inaccurate Information

If you see any inaccurate information on your credit report, dispute it with the credit bureau immediately. This is one of the most accessible credit repair techniques. Doing so can help you improve your credit score and ensure that your debt settlement is accurately reported to credit bureaus.

10. Create a Plan to Avoid Future Debt

Learning how to negotiate your credit card debt and settle your account may not be enough. If you start using your credit cards recklessly once your account is settled. Consider creating a plan so you can stay out of debt in the future and use credit responsibly. Speaking to a credit counselor or a personal finance expert can help.

Create a Budget

One of the best things you can do is to create a budget. Choose from types of budgets, such as the envelope system, 50/30/20 budget, and zero-based budget. Creating a budget will allow you to prioritize your expenses and see exactly where and how much money you're spending.

The envelope budgeting system is particularly helpful if you find it challenging to stay away from credit cards because it is entirely based on cash. Paying with cash for all your expenses will make it easier for you to visualize how much you have for each category. Regardless of the budgeting system you choose, stick to it to avoid overspending.

Build an Emergency Fund

Once you've successfully paid off your debt, start putting aside some money each month to build an emergency fund. This kind of fund can help you cover unexpected expenses and emergencies such as job loss, home repairs, and medical emergencies. 

Ideally, your emergency fund should be equal to two-three months of expenses. An emergency fund will help you avoid relying on your credit cards for emergencies.  

Save for Future Goals

Once you've built your emergency fund, you can start saving for your future goals. Whether you want to save for retirement or for a down payment, saving for future expenses will help you avoid accumulating any more debt. Building a healthy amount of savings will also provide you with financial stability and the peace of mind that comes with it.

Negotiate Credit Card Debt Successfully

TurboDebt can help you negotiate your credit card debt if you're not comfortable doing it yourself. Our debt professionals can help you find the right debt relief option based on your financial situation. Connect with us today for a free consultation.

You can also read our reviews to see how our debt relief services have helped thousands of clients.