Negotiating Credit Card Debt

When it comes to negotiating your credit card debt there are two main options, each of which requires a different approach. Consumers facing an ever growing balance on their high interest credit cards find themselves in the unenviable position of either continuing to make payments as they have in the past or to attempt to negotiate with creditors to lower their debt. They can do this in the following ways:

1) Contact their creditor to get lower interest rates, waive fees or negotiate other factors which make the terms more favorable and affordable for the card holder

2) Negotiate and/or settle their accounts for less than the balance owed

Each process is designed to make paying off your debt easier, but which one is right for you? Here we well look at a few things consumers should consider before negotiating credit card debt.

Negotiating Terms

For consumers who find themselves unable to make headway with their high interest credit card debt but are able to make the minimum monthly payments, negotiating the terms of your account would be a good first step. This can be accomplished by either contacting your creditors yourself or using the services of a credit counseling/debt consolidation company which will negotiate better terms on your behalf. If you decide to negotiate on your own, you will have to contact each creditor individually to state your case and continue to pay your payments directly to individual accounts. If you opt for third party assistance you will likely make one payment to the company working on your behalf who in turn will allocate monthly payments to individual creditors. By negotiating lower interest rates and waiving penalties and fees more of you payment will be applied to the principle balance versus getting absorbed by interest charges and various fees. This will help you pay off your debt in a shorter period of time but you will be paying off you debt in full, versus negotiating a reduced payment.

Negotiating a Settlement

This option should not be confused with the negotiating favorable terms as it is a complete and separate process with different risks and results. Debt negotiation is a process that should only be considered by individuals who can no longer reasonably pay their minimum payment and therefore are either behind or about to fall behind on payments. As with the first option, you can either attempt to negotiate your debt on your own or employ a third party company to negotiate with your creditors on your behalf. The difference is you are not negotiating better terms, interest rates or waiving fees and penalties. Instead you are basically saying that while you would like to hold up your end of the credit card contract you are unable to do so as a result of a severe financial hardship. Instead you attempt to settle your account for less than the amount you owe. A creditor will not entertain this option for accounts that are current, therefore you will likely not receive a settlement until your accounts are past due, charged off or in collections. Therefore your credit will be damaged, you will be subject to calls and other correspondence from debt collectors and you risk the chance you might be sued before a settlement is reached. If you are willing to take those risks and are able to save some money toward settlements, this option may be your best chance of eliminating your debt once and for all. If your creditor agrees to a settlement you can save as much as 60% of the balance owed, however you will have to pay that balance in one lump sum when the settlement is negotiated. Some creditors will consider two payments to ease the financial burden but you should be prepared to have funds available in a short period of time once a settlement has been reached. Ultimately, this is a better option for people who are trying to avoid filing bankruptcy.

As you can see there are significant differences between the two options and each is geared specifically toward consumers meeting the financial requirements. Before negotiating credit card debt either on your own or through a third party company you should first take a close look at your financial situation to determine which process is right for your circumstances. Also remember that once you engage the help of another party, there will be fees associated with the process that affect how much money you will save in the long run.