how to negotiate settlement with credit card

by Kenny Johnston Published 3 years ago Updated 2 years ago

Confirm how much you owe. Before credit card negotiation begins, check your account balance online or call your card issuer to discover your current balance. ...
Review your options. Decide if a lump-sum settlement, workout agreement or hardship agreement makes the most sense for your circumstances.
Call your credit card issuer. If you’ve decided to handle negotiations on your own, call your credit card company and ask to speak with the debt settlement, loss mitigation or ...
Outline your terms. If you’re considering filing bankruptcy or hiring a professional to help you with your debt, let the card issuer know and mention that you’d rather work things ...

T ake detailed notes and follow up if needed. If you like, you can opt to record the call, although some states require you to let the card issuer know ...

Get the agreement in writing. If the card issuer agrees to a settlement or arrangement that you’re happy with, ask for documentation. ...

Full Answer

How much should I offer in a credit card settle?

How Much Should You Offer To Settle A Credit Card Debt? Consider lowering your debt to 50% or less if you are negotiating with a creditor. This is a fair goal considering debtors’ history when it comes to debt settlements. Settlements may range from $500 to $1,500 if you owe $3,000.

Should I accept a credit card settlement?

You should, however, avoid debt settlement companies. To get the ball rolling, you (or your attorney) should contact the creditor and make an offer to settle the debt. A credit card company might accept a settlement if you're very delinquent on your payments.

How to make a settlement with a credit card company?

Stop using your cards immediately. ...
Your accounts must be past due. ...
Be patient. ...
Speak with the right person. ...
Make your pitch. ...
Present your offer verbally. ...
Have your funds ready to go. ...
What should you offer? ...
Let them know you have other creditors. ...
Be humble and show remorse. ...

More items...

How to negotiate credit card debt successfully yourself?

How to negotiate credit card debt settlement yourself step-by-step Step 1: Define your goals. All debt settlement negotiations start with an offer – either a collector reaches out to you or you reach out to a creditor. It’s important when trying to negotiate a settlement that you have realistic goals.

What percentage will credit card companies settle for?

Typically, a creditor will agree to accept 40% to 50% of the debt you owe, although it could be as much as 80%, depending on whether you're dealing with a debt collector or the original creditor. In either case, your first lump-sum offer should be well below the 40% to 50% range to provide some room for negotiation.

How much should I offer for credit card settlement?

Offer a specific dollar amount that is roughly 30% of your outstanding account balance. The lender will probably counter with a higher percentage or dollar amount. If anything above 50% is suggested, consider trying to settle with a different creditor or simply put the money in savings to help pay future monthly bills.

Can you settle a credit card without hurting your credit?

While settling an account won't damage your credit as much as not paying at all, a status of "settled" on your credit report is still considered negative. Settling a debt means you have negotiated with the lender and they have agreed to accept less than the full amount owed as final payment on the account.

How can I settle down my credit card debt?

What is the credit card settlement processVisit the issuer or a debt settlement agency.Explain your inability to make payments via a credit card settlement letter and mention that you're open to negotiating other repayment terms.Offer a lump sum or inform the issuer of your plans to file for bankruptcy.

Is it better to settle or pay in full?

Settling for Less Can Relieve Stress And it's important to know that paying your debt in full is the better option when it comes to your credit. If you can't pay in full, settling is better than defaulting on your debt and may relieve some stress for you.

How much less will debt collectors settle for?

Offer a Lump-Sum Settlement Some want 75%–80% of what you owe. Others will take 50%, while others might settle for one-third or less. Proposing a lump-sum settlement is generally the best option—and the one most collectors will readily agree to—if you can afford it.

What is a reasonable full and final settlement offer?

It depends on what you can afford, but you should offer equal amounts to each creditor as a full and final settlement. For example, if the lump sum you have is 75% of your total debt, you should offer each creditor 75% of the amount you owe them.

How many points does a settlement affect credit score?

Debt settlement practices can knock down your credit score by 100 points or more, according to the National Foundation for Credit Counseling. And that black mark can linger for up to seven years.

How long does it take to improve credit score after debt settlement?

between 6 and 24 monthsHowever, a debt settlement does not mean that your life needs to stop. You can begin rebuilding your credit score little by little. Your credit score will usually take between 6 and 24 months to improve. It depends on how poor your credit score is after debt settlement.

Is settlement good for credit card?

Settlements generally provide you with a cheaper way of paying the creditor an amount that will make the credit disappear, by closing the credit card or loan account. But having a settled status against a credit card or a loan account has a very negative impact on your credit score.

Is settlement good for credit?

Loan settlements impact on the CIBIL score When a loan is termed settled, it is viewed as a negative credit behaviour and the borrower's credit score drops by 75-100 points. The CIBIL holds this record for over 7 years.

Is it worth it to settle debt?

The short answer: Yes, debt settlement is worth it if all of your debt is with a single creditor, and you're able to offer a lump sum of money to settle your debt. If you're carrying a high credit card balance or a lot of debt, a settlement offer may be the right option for you.

What is a reasonable full and final settlement offer?

What percentage should I ask a creditor to settle for after a Judgement?

If you decide to try to settle your unsecured debts, aim to pay 50% or less. It might take some time to get to this point, but most unsecured creditors will agree to take around 30% to 50% of the debt. So, start with a lower offer—about 15%—and negotiate from there.

Should I pay a lump sum on my credit card?

Never make a lump-sum credit card payment The interest rate you pay on your credit card debt could be higher than the interest on your mortgage, student loans and auto loans - combined. Each day you don't make a payment means more interest accrues on your debt balance.

Will Capital One negotiate a settlement?

Yes, Capital One does accept debt settlements, either directly or through a collection agency. You can refer to the most recent notice you've received and reach out to that party to begin the negotiation process for an amended payment agreement.

How to finalize a settlement?

Release the settlement funds. To finalize the settlement, you need to deliver the settlement funds on or before the expiration date. Most settlement funds are remitted via ACH bank draft (aka "check by phone"). Make sure you write down who you spoke with that processed your payment. Every once in a blue moon a creditor or collection agency might require you to overnight a cashier's check to finalize a settlement. But the vast majority of settlements are finalized via ACH bank draft.

What is the biggest determinant of successfully negotiating settlements for less than full balance?

Perhaps the biggest determinant of successfully negotiating settlements for less than full balance is making sure you meet the minimum criteria.

How many credit card accounts are delinquent?

Whether we're in a good economy or not, a certain percentage (approx. 2-5%) of credit card accounts are delinquent. For credit card companies, it's just the cost of doing business — and they know it.

How long does it take to settle a debt?

In fact, some may lose patience and sue you. Certain debt settlement companies advertise "debt settlement plans", implying you can take several years to get through the process. In my opinion, that's a recipe for disaster. Generally speaking, I recommend completing the debt settlement process in 12 months or less (18 months tops).

Can you send a cease and desist letter to a creditor?

With certain credit card companies, a cease and desist letter is an automatic trigger to fast-track your account for litigation. Besides, if your goal is to negotiate a settlement with a creditor, you need to keep an open line of communication. For these reasons, I never recommend sending a cease and desist letter.

Is debt settlement a viable alternative to bankruptcy?

Although the debt settlement process can be a viable alternative to bankruptcy, it isn't perfect.

Can you do it yourself in debt settlement?

Same thing applies to the debt settlement process. You can totally take the do-it-yourself approach and be successful .

How to settle credit card debt?

You may want to write down your credit card debts on paper or a spreadsheet and start budgeting to find out what you can afford to repay. List the interest rate and the balance you owe for each card. This way when you're ready to contact your credit card companies you’ll have the information available and know which ones are worth trying to negotiate with.

Why do credit card companies settle debt?

Most credit card companies are willing to settle debt because they also want to avoid expensive lawsuits. They have a backup plan if you don’t repay their debt: They’ll sell your credit card debt to a debt collector or a debt buyer or sue you to force you to repay. If they sell your debt, they won’t be recouped the full amount. And taking you to court is expensive and time-consuming, and they may still never recover the money you owe.

What is debt settlement?

In a debt settlement, you make an agreement with your credit card lender to a new set of payment terms. The credit card company may agree to forgive part of your debt or agree to a new payment schedule to allow you to get back on track. You likely won’t be able to negotiate a debt settlement unless you are already past due on your debt. Otherwise, the credit card lender will assume you can pay back your debt.

How to get your creditors to forgive you?

First, you can ask your creditors to forgive a portion of your debt. Tell them you have a fixed amount of money available to pay toward your debts. Explain further that you want to prioritize repaying your creditors but can only do so if they agree to forgive a portion of your credit card debt. To make the offer more appealing to your creditors, mention that you’re considering filing for bankruptcy. When creditors hear the word bankruptcy they often have more reason to fear they’ll never be repaid.

How to start a debt management plan?

To start a debt management plan, you will work with a credit counselor at a non-profit credit counseling agency. The credit counselor will negotiate with your lenders on your behalf to create a repayment plan that fits within your budget. They can often negotiate lower interest rates for you as well.

What to do if you haven't missed a payment?

If you’re in a situation where you haven’t recently missed payments and you have a good credit score , call your credit card issuer and talk with them. You can still ask for the following:

Can a credit card company close your account?

But all is not lost because they want to keep your business, especially since you've been making your payments on time. Your credit card company doesn’t want you to close your account. If you have a good credit score, they know you’ll be able to do a balance transfer to one of their competitors or open a different credit card with a lower interest rate. If that happens, they’ll lose your business and will not profit off of the interest they charge you each month. They also know that you can take out a personal loan to repay your credit card debt, which would eliminate any profit they can make from you.

How to negotiate a lower settlement?

You’ll want to start by offering a lower settlement amount than what you’re willing to pay. For instance, suppose you owe $10,000 and your settlement tolerance (the most you’ll pay) is $6,000. But you don’t want to pay more than you must and hope that the creditor will settle for $3,000. To give yourself the negotiating room needed to work up to $3,000, you’d probably want to start low by offering $1,000.

How to get settlement terms?

Getting the Settlement Terms in Writing. Once you reach an agreement, you’ll want to get the terms of your settlement in writing before paying the settlement amount. The letter should state the amount the creditor will accept in satisfaction of your obligation and the date you must pay the funds.

What happens if a collection agency buys your debt?

A collection agency has bought the debt. After the original creditor charges off your account, you’ll remain responsible for the full value of the debt, but instead of paying the balance to the original creditor, you’ll pay the collection agency. A collection agency is more likely to settle your debt for less than what you owe because it bought ...

Why is a collection agency more likely to settle your debt?

A collection agency is more likely to settle your debt for less than what you owe because it bought your debt at a discount. The negotiation tips that follow tend to work best with a debt collector. You can get a better idea about the process by reading Delinquent Debt: What to Expect in Debt Collection.

How long does it take for a credit card company to collect?

When you’re behind on a payment, your credit card company will likely attempt to collect from you for up to six months. If you don’t bring your debt current within that time, you can expect the original credit card company to “charge off” (sell) your debt to a professional debt collector for a discount.

What do people who negotiate assume?

People who regularly negotiate assume that you’ll start with a low number and gradually increase your offer—not start with the highest number you can tolerate. Therefore, don’t expect your opponent to be satisfied settling for your initial number.

What happens if you get a money judgment?

Specifically, if the creditor gets a money judgment, it will already have the information it needs to take money out of your bank account (bank levy) or paycheck (garnishment).

What to do after settling a credit card?

After you’ve worked out a settlement with your credit card company, it’s crucial to get a written copy of your agreement so you have proof of your payment terms.

What does it mean to settle credit card debt?

Settling debt means coming to an agreement with your creditors to pay back part of what you owe while being forgiven for the rest. If you’re considering settling your credit card debt, you’ve probably already missed some payments, perhaps even several months’ worth. You may have already been referred to a collection agency.

What happens if you can't settle your credit card debt before it is written off?

If you cannot settle your account before charge off, you will still owe the debt if it is written off, but it will be reported as a charge-off on your credit report, which hurts your score even more. That’s also a point when a creditor might sell your debt to a collection agency.

How long before a creditor writes off a debt?

Also find out when you last made a payment on the account or accounts. It’s often ideal if you can settle your debt before it becomes 180 days delinquent, when many creditors write it off as a loss. If you cannot settle your account before charge off, you will still owe the debt if it is written off, but it will be reported as a charge-off on your credit report, which hurts your score even more. That’s also a point when a creditor might sell your debt to a collection agency.

How long does it take to settle debt?

In general, a reasonable expectation is settling your debt for 50% less of what you owe if your account is five or more months late. For some, this could mean it could take a couple of years to settle all your debts.

What happens if you miss a payment on a credit card?

If you’ve already missed payments on a bank credit card, that bank may have already reached out to you about reducing your monthly payments by enrolling you in a hardship plan. While not widely advertised, these programs lower your interest rate. They may also waive or eliminate fees and penalties.

Why would a credit card company let you off the hook for less than what you owe?

Why would a credit card company let you off the hook for less than what you owe? It simply comes down to whether they want some of their money back versus none of it. Credit card debt is unsecured debt, meaning it’s not tied to an asset like a house or a car. So if a person’s financial situation gets so dire that they file for bankruptcy, it’s possible a credit card company won’t see any of the debt repaid.

Why Should You Negotiate Your Credit Card Debt?

If you carry a high credit card balance or have missed payments, you may have heard from a debt settlement company. Often these organizations promise to resolve your debt for pennies on the dollar. It can sound like a relief to have someone else do the work for you. But the Federal Trade Commission cautions that you may not get the results you want.

What to do if your credit card company is having trouble making your minimum payment?

If your financial circumstances have changed, inform your credit card company that you’re having trouble making your minimum payment and explain why. Be factual. Explain your hardship, but realize the call representative may have fielded a lot of calls. Don’t take offense if they don’t initially understand or sound empathetic.

What is debt settlement?

This is an agreement to settle a debt owed to a creditor for a single payment, or lump-sum. In most cases this is the approach a debt settlement company will take. For instance, if you owed $12,000, you might settle upon a total payment of $8,000. You can also ask to negotiate a new principal amount owed on your credit card, but in this case fees and interest rates will still apply. Remember creditors are under no obligation to accept less than you owe, but it never hurts to ask.

How to manage credit card debt?

If you’re behind on your payments or have lost your income, speaking with your credit card provider is an important first step in managing your debt. By staying in communication with your creditor you can avoid additional fees and potentially protect your credit score. Knowing your options for renegotiating your credit debt and working with your creditor to develop a plan can set you on the path to bringing your credit card debt under control.

What happens if you fail to comply with a credit card workout agreement?

Once the agreement term expires or if you fail to comply with the agreement, your credit card’s regular terms including interest and fees may take effect. If a penalty APR was assessed on your card prior to the agreement, you may revert to the penalty APR. Make sure to get any agreement in writing. Once you enter into a workout agreement, you are responsible for complying with the new terms. Your creditor does not need to provide you with notice if your interest rate increases if you are out of compliance.

What is a workout agreement?

A workout agreement is an agreement for repayment with your creditor, typically made once your account is in default. Workout agreements can include a reduction in your interest rate and/or the cancelation of fees associated with the default while you are in repayment.If you enter into a workout agreement, your creditor can provide you with easier repayment terms, for a specified period of time to allow you to pay down your balance.

What is the best way to get credit advice?

If you decide to seek professional advice, look for an approved credit counselor. Most of these services are free and federally regulated. An accredited financial counselor or financial fitness coach can provide unbiased information to help you make a decision that best meets your needs.

What is settlement for credit card companies?

For-profit companies offer to negotiate with your credit card company and try to get them to agree to a “settlement” to resolve your debt (typically, the “settlement” is a lump sum payment that is less than the full amount you owe).

What to do if you're drowning in credit card debt?

If you’re drowning in credit card debt, it may take a phone call (or several) to your credit card company to devise a workable solution. Don’t know where to start? Here’s a guide for how to negotiate with your credit card company.

How does credit counseling work?

Under a debt management plan, the credit counseling agency works with you and your creditors on a financial plan. You deposit money with the credit counseling organization each month, and the organization uses your deposits to pay your creditors on schedule. These programs do have qualification requirements and there is typically a fee.

What to do when debt becomes unbearable?

But when this debt becomes an unbearable financial burden, what can you do? One option may be to try to negotiate with your credit card company.

How to find out how much you owe on a credit card?

If you have multiple credit cards, go through your statements and make an itemized list of how much you owe on each card and the respective interest rate. Also jot down the customer service phone numbers.

How to lower credit card interest rate?

Lower your interest rate. Remove past late fees. These actions can reduce your overall debt and help you pay off the balance in a shorter time frame.

What is a lump sum settlement?

Lump-sum settlement. This option involves negotiating with your credit card company to pay less than you owe. But it only works if you have access to a significant amount of cash that you can use to pay the card company upfront. Your credit card company may agree to reduce your debt to the principal you owe.

What is a settlement on a credit card?

A settlement is when a credit card company forgives a portion of the amount you owe in exchange for you repaying the remaining amount. The remaining amount can be repaid in a single payment or over a series of payments.

How to save money on credit card debt?

Working directly with your credit card company: Managing your own settlement can save you money by avoiding debt settlement fees associated with other services and ensures that you're involved and aware of every step in the process. The CFPB also provides recommendations for negotiating a debt on your own . “Consider all of your options, including working with a nonprofit credit counselor, and negotiating directly with the creditor or debt collector yourself.” - Consumer Financial Protection Bureau

Does a settlement affect your credit report?

The settlement may be reported to the credit bureaus. While it isn’t possible to say exactly how a settlement will affect your credit report, your settlement and payment information likely will be reported to the major credit bureaus as “settled in full for less than the full balance.”. This can stay on your report after you’ve paid ...

Is it risky to settle debt?

The CFPB emphasizes that dealing with debt settlement companies can be risky. They note that debt settlement companies “often charge expensive fees” and that “most debt settlement companies will ask you to stop paying your debts in order to get creditors to negotiate...a settlement.”

Do credit card settlements have to be complicated?

Credit card settlements can seem complicated, but they don’t have to be. By understanding your options, you can make an informed decision about how to manage your settlement.

Can a debt settlement company help you?

Debt Settlement Resources: You might have heard advertisements for debt settlement companies claiming to negotiate a settlement with credit card companies on your behalf. While these companies can help you with your debt settlement, there may be other associated costs.

What is credit card settlement?

Credit card settlement is a type of debt settlement that will let you pay off credit cards for less than what you originally owed. This is usually done through a third-party agency, although you may also be able to negotiate hardship options or lower interest rates on your own. When you use a debt settlement company, you will be responsible for sending payments to the agency and may have to pay extra fees for the service.

How to negotiate a credit card debt?

If you’ve decided to handle negotiations on your own, call your credit card company and ask to speak with the debt settlement, loss mitigation or hardship department ; a general customer service representative won’t have the authority to approve your request. Once you’re connected with someone who has the ability to negotiate with you, explain your situation and make your offer. Be polite but firm.

How does credit card debt settlement affect your credit score?

This may cause your debt to fall into delinquency, which your creditors will then report to the credit bureaus. Delinquencies stay on your credit report for seven years, meaning you could feel negative impacts even after you settle the debt.

Why do credit card companies negotiate debt?

Why credit card companies negotiate debt. When finances get tight, credit card payments are often one of the first bills people let slide. After all, credit card debt is unsecured. If you don’t pay your auto loan or your mortgage, your car or house could be at risk. The same isn’t true with credit cards.

What is a workout agreement?

A workout agreement typically involves your credit card issuer lowering your interest rate or temporarily waiving interest altogether. The bank may also be willing to take other steps to make it easier for you to keep up with your debt, including reducing your minimum payment and potentially waiving past late fees on your account.

What happens if you pay your credit card bill late?

When you pay any bill late, credit card bills included, you may damage your credit. Credit problems can haunt you for years. Plus, if you default on a credit card bill, there’s a chance that the bank might sue you, and that leaves you vulnerable to more potential problems.

How much does credit counseling cost?

Many credit counseling companies charge startup fees and monthly fees (often $25 to $35) when you enroll in a DMP. Depending on how long it takes you to pay off your debt, even these small fees can add up to thousands of dollars.

What does it mean to settle credit card debt?

Settling your credit card debt typically means that you negotiate an agreement to repay a portion of your balance, because you are facing hardships that prevent you from repaying the debt in full or if you cannot pay your outstanding balance for other specific reasons.

What does it mean when a debt settlement is a settlement?

A settled account may be seen as proof that you were unable to pay your balance in full. New lenders may look into your full credit report to understand how likely you are to repay any balance they lend to you, so a "Settled" account shows that you were unable to completely repay a balance in the past. For this reason, while a debt settlement can ...

What is a debt settlement?

Credit card issuers regularly report your payment history to credit agencies each month. Along with each payment record, credit card issuers will update your account condition, which include:

What does it mean when your credit score is settled?

How long does a debt settlement stay on your credit report?

This record of your debt settlement will remain on your credit report for seven years, which can also affect your ability to be approved for loans or new credit lines, and could even be seen as a negative when you apply for a rental home.

What happens when you work with your creditor?

When you work with your creditor to demonstrate hardship (such as loss of job or extended medical leave), they may be willing to develop a settlement agreement. Settlement agreements allow you to pay less than the full balance against the card, but will close the account after that agreed payment has been made.