Negotiating Credit Card Debt – Blogging Away Debt Blogging Away Debt

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by Jenny Smedra

Negotiate credit card debt

This weekend I had the opportunity to meet an old friend. While we were talking about our personal lives and how we deal with them, the conversation turned to personal finances. As we thought about how our lives had changed over the past year, we found that we were both struggling to manage our credit card debt. Realizing I was at risk of falling into old habits, I decided it was time to take control and come up with a plan for negotiating my credit card debt.

Dealing with credit card debt … again

I celebrated a major financial milestone about five years ago when I paid off my credit cards and went completely debt free. However, when I returned home last summer, I found myself in a very familiar and undesirable position. With little cash and inflated travel prices, I paid for everything with my credit card. Although it was a relatively small amount compared to the mountain of debt I’d already conquered (around $ 3,000), it was daunting to see my balance rise again.

I also worked fewer hours and earned less income. Unfortunately, this means that I can’t pay as much for the principle as I did when I was working in Taiwan. My credit card kept me afloat during the pandemic when I was struggling to make ends meet. However, because of the high interest rates, I only seem to be standing on the water to pay off my debts. I keep paying regularly and sending more when possible. However, little progress has been made in reducing my overall balance. After our chat, I knew it was time to think about negotiating my credit card debt to avoid another relapse.

Why credit card companies negotiate

After a little online research, many credible sources discussed how and why credit card companies frequently negotiate debt. Because credit card debt is unsecured, many businesses prefer to make a payment to recover at least some of the amount owed. Based on personal testimonies from friends and online forums, they also offer a variety of ways to reduce your debt if you reach out to them with intent to pay. They raise money and are often willing to compromise and work out a payment plan with you. So it looked like I had a good chance of finding a solution and getting back on the fast track to pay off my debt.

Make a plan for negotiating your credit card debt

The first step in any of my financial plans is to sit down and review my records. So I went through credit card statements and recorded each individual’s balances, interest rates, minimum payments, and payment history. Although I had already researched several common settlement options, I also called a debt advisor to make sure I had all of the options available. It was important for me to read the fine print and understand whether there would be any downsides in the long run.

Settlement options when negotiating credit card debt

After speaking with the debt relief advisor, I narrowed down the possible solutions. Since I didn’t qualify for their debt management programs, my best bet was to contact the credit card companies directly. The following settlement options appeared to be the most promising for my situation.

Payment agreement

The first option was to contact the debt settlement department to discuss a payment arrangement. Based on the experiences of those I spoke with, credit card companies offer a wide range of arrangements. Some waived or reduced monthly minimum payments while others gave earlier late fees. However, the company will often cut your line of credit so that you can no longer use the card. Additionally, payment arrangements can affect your credit score as you have less credit available.

In my circumstances, it would be best to ask about lower interest rates. This would not only allow me to pay more for the main balance, but would also allow me to repay my credit card debt in less time without affecting my creditworthiness.

Flat rate billing

Another promising option for negotiating my credit card debt was a flat-rate settlement. With this agreement, you can negotiate to pay less than you owe. However, you need to have a large amount of cash in order to make a large prepayment.

While this was a quick fix for eliminating debt, it could also have a negative impact on your credit score depending on how the company reports the billing. If the account is reported as “settled” or “withdrawn,” it will count towards your credit score. There is also a tax implication as the debt relief of more than $ 600 is considered taxable income. Additionally, billed accounts will remain in credit reports for 7 years. So, flat-rate billing can hamper your options for borrowing in the future.

Compensation transfer

Transferring credit card balance seemed like another fascinating way to get over my credit card debt. With a balance transfer, you move your overall principle from high-yielding credit cards to one with lower interest rates. Some even offer interest-free introductory periods between six and 18 months.

Since my balance was relatively low, I am confident that I will be able to withdraw it in full within a year. However, some cards charge transfer fees that actually cost you more than you end up saving. It also felt counterintuitive to take out another credit card as I have trouble keeping control of the one I already have.

Act as your own agent

Not having qualified for any debt relief or consolidation loan, I decided to act as my own agent and negotiate my credit card debt for myself. After carefully considering my decisions, it seemed advisable not to do anything that could affect my creditworthiness. I worked hard to make it better so I didn’t want any bills in my credit history. So I contacted my credit card companies to discuss lower interest rates.

I prepared a script and rehearsed it several times before making the call. I nervously waited to be connected to the right department and was ready to ask for a manager if necessary. When I reached the right person, the request was simple enough. I checked my current interest rate is 16.9% and asked to lower it. After a few moments, the representative checked my account and informed me that I qualified for a lower APR rate of 15.24%.

Even though this wasn’t a big win, I still see it as a win. Every small win brings me one step closer to being debt-free again. After learning from previous experiences, I also asked for a written change and recorded all the details of the call.

This whole process taught me a few important things. First, you will never get help if you don’t ask for it. Second, the worst thing they could have told me was “no,” so I had nothing to lose. Finally, it reminded me how easy it is to get back into bad habits. However, there is one important difference the first time I walked this trail. This time I was able to spot the problem and fix it before it got out of hand. If I meet my repayment schedule, I should be out of debt before the end of the year.

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