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Can You Negotiate Credit Card Debt?

Find out whether you can negotiate with your credit card company to lower your debt, but keep in mind the repercussions it can have.

Stack of colorful credit cards.
Stack of colorful credit cards.

Image source: Getty Images.

When you owe money on your credit cards, the best thing to do is make a debt payoff plan and work on ridding yourself of that debt ASAP. Sometimes, however, it’s not possible to pay the full amount you owe. You may be struggling to make your minimum monthly payments because of a financial hardship, or may simply owe so much that you have no hope of becoming debt-free for decades.

If you find yourself in a situation where your credit card debt is unmanageable, the good news is that you do have options to negotiate credit card debt. The bad news is, doing so is likely to be damaging to your credit.

It’s important to understand what it means to negotiate credit card debt, how you do it, and what it means for your long-term financial future. This guide can help.

How to negotiate credit card debt

When you negotiate credit card debt, you ask your creditors to change the standard terms of your card agreement so you pay less than you normally would or less than the total amount you owe. Creditors are understandably reluctant to do this, but they may be willing if you’ve been late on payments or missed payments and if the creditor is worried you may file bankruptcy.

There are a few different kinds of agreements you could potentially come to with your creditors, depending upon your situation. For example:

  • You could make a lump sum payment for less than the full balance owed: You could offer to pay a set sum of money that’s less than the total balance if the creditor will forgive the difference. Unfortunately, you’ll need to come up with a lot of cash for this option to work.

  • You could make a workout agreement: This agreement would allow you to renegotiate the terms of your repayment so it’s easier for you to pay off your card over time. As part of your agreement, the creditor may agree to waive late fees, reduce your interest rate, and/or reduce the monthly payment due. In exchange, you’d generally need to agree to comply with a specific payment schedule.

  • You could enter into a hardship plan: If you’re facing a short-term financial hardship, your creditor may be willing to temporarily pause or lower payments. In many cases, you’ll be required to agree to a structured repayment plan in order for your creditor to put you on a hardship plan.

The right choice will depend whether you hope to reduce the total balance due or whether you want to simply make it easier for yourself to pay off what you owe when you’re struggling.

Do you need to get help negotiating credit card debt?

Dealing with creditors yourself can be a time-consuming and challenging process. There are services out there that will help you come to an agreement with creditors when your debt becomes too much to handle.

The problem is, many of the services that promise to help you deal with your credit card debt are unscrupulous. Some charge very high fees for basic things you can do yourself. Others give you advice without explaining the implications, such as telling you to withhold payments to make your creditors more likely to deal with you without explaining how this will affect your credit score. Others could even take your money and do nothing at all.

The reality is, you do not need to get help to come to a deal with your credit card company. You know the options likely to be available to you, so you can talk to customer service to make an agreement to deal with debt.

You can make a proposal for how you hope to resolve your debt problem and go back and forth with your creditors until you come to an arrangement that the creditor OKs. Just make sure you get everything in writing before you send any money!

If you do want to get help dealing with your credit card debt, it’s imperative you look for a legitimate non-profit credit counselor. The counselor you work with should make full disclosure up front of any fees and should explain exactly what services they’ll offer. You should also check with the Better Business Bureau to find out if there have been complaints against the credit counselor or if they have a good reputation.

How will negotiating credit card debt affect your credit?

Whether you do it yourself or get help, there’s no question that your credit will suffer if you negotiate credit card debt.

Since most creditors don’t negotiate until you’ve been late on payments, your credit score will take a hit for every payment that’s tardy or for every payment you miss. Most creditors will then report the debt as settled, rather than paid in full, if you have negotiated a lump sum payment or a payoff plan that allows you to pay less than the full total owed.

When you’re negotiating with your creditors, you can ask if they’ll report your debt as paid or simply not report to the credit reporting agencies at all. While some creditors might be willing to do this as part of your debt settlement agreement, many won’t -- so chances are good you’ll need to deal with the black mark on your credit that comes from not paying off every dollar you owe.

The good news is, once you’ve resolved your debt problems by negotiating your credit card debt, you should no longer have late payments or maxed out cards reported on your credit report. With no new negative information being posted, you can begin to rebuild your credit if you borrow responsibly.

Is negotiating credit card debt a good option for you?

Negotiating credit card debt can be a good solution if there’s no reasonable way for you to repay the debt you owe. But you should think carefully about whether other options such as debt consolidation might be a better approach. Go into debt negotiation with open eyes and an understanding of what will happen to your credit, and make the most informed choice about what’s right for you.

The Motley Fool owns and recommends MasterCard and Visa, and recommends American Express. We’re firm believers in the Golden Rule. If we wouldn’t recommend an offer to a close family member, we wouldn’t recommend it on The Ascent either. Our number one goal is helping people find the best offers to improve their finances. That is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.