How to negotiate debt with your credit card company

If your monthly credit card payment rivals your mortgage or rent, or if high interest rates are making it impossible for you to get rid of the debt, it might be time to negotiate with your credit card company.

On average, people hold around $6,469 in credit card debt, according to a 2023 Credit Karma analysis. And with a median household income of $70,824, according to 2021 Census Bureau data, most Americans likely use a substantial portion of their earnings to pay down consumer debt.

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.

Credit card debt is typically unsecured debt, meaning a credit card company can’t come after your assets if you fail to pay what you owe. Since credit card companies don’t have this recourse, many are willing to negotiate a settlement with customers to recoup as much of the debt as possible.

“Credit card companies are about collecting the money. They’re going to size this up and if they say, ‘This is a person who sounds like a good risk and is likely to eventually repay this bill,’ then they’re likely to make concessions,” says Mike Sullivan, a personal finance consultant with Take Charge America, a national nonprofit credit counseling agency.

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.

• Step 1: Understand how much you owe
• Step 2: Explore your options
• Step 3: Understand the risks
• Step 4: Call your credit card company
• Step 5: Get everything in writing

Step 1: Understand how much you owe

The first step is to assess your credit card debt. 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. Now you’ll have all this information stored in one place once you’re ready to call your credit card companies.

Step 2: Explore your options

Before you pick up the phone, understand what settlement options are available and how much you can afford to pay. Each choice can affect your credit scores, and some may have tax implications. The most common settlement options are described below.

Workout agreement

With a workout agreement, you can ask your credit card company to do the following:

• Waive or reduce the minimum monthly payment
• 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. If you have some money coming in but not enough to meet your current monthly obligation and are facing longer-term financial challenges, then a workout agreement may be a good option.

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.

Hardship plan

If your financial difficulty is due to job loss or a serious illness, your credit card company may be willing to put you on a hardship plan. This is an arrangement that may lower your card’s minimum payment, interest rate and fees. The hardship plan will also typically include a structured payment plan.

Consumers who have temporary financial challenges should consider asking their credit card company if they have a hardship program.

Debt management

Nonprofit organizations like the National Foundation for Credit Counseling offer debt management programs. 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. One typical requirement is that you must be able to pay off the debt in 60 months or less.

Debt settlement

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).

With this arrangement, a consumer pays a debt settlement company a monthly payment. The company puts that money into an account. When the company reaches a settlement amount with the creditor, the funds are withdrawn — along with the settlement company’s service fee — and the creditor is paid.

But because of the associated fees and detrimental impact on your credit scores (more on that later), using a debt settlement company should be considered a last resort before filing for Chapter 7 bankruptcy.

Should I choose debt management or debt settlement?

If you qualify for a debt management program, this is the better option because it’s less costly and doesn’t hurt your credit scores as much as debt settlement.

Step 3: Understand the risks

All these negotiation options come with downsides, and it’s important for you to be aware of them. The settlement you choose will depend on your financial situation.

With a workout agreement, your credit card company will likely cut your credit line, rendering your card unusable. This will also ding your credit scores because it lowers your available credit and increases your credit utilization ratio, which is the amount of debt you owe compared with your available credit.

Depending on how your credit card company reports the debt to the major credit bureaus, a lump-sum settlement can affect your credit scores.

If it reports the debt as “settled” or a “charge-off,” which is debt that is at least six months delinquent and likely won’t be paid, then your credit will likely be negatively impacted. If the company reports the debt as “paid as agreed,” “current” or “account closed,” there may not be a negative effect on your scores.

There are tax implications too, since forgiven debt of $600 or more may be considered taxable income, Sullivan says.

A hardship plan may also affect your credit scores, depending on how it’s reported to the credit bureaus. And your debt is deferred — not forgiven — so you still must pay it.

Many credit counseling organizations offer debt management programs for a small monthly fee, and negotiating this way generally doesn’t hurt your credit scores (but your credit reports may indicate that you are enrolled in a debt management program).

“I would tell consumers who want the least impact on their credit scores to go to a nonprofit debt management company rather than a settlement company,” says Linda Jacob, a financial counselor with Consumer Credit of Des Moines. “The consumer pays back the entire amount borrowed, so the creditors realize that working with us is to their advantage.”

On the other hand, a settled account can remain on your credit reports for seven years, which makes it challenging to take out a future loan, Sullivan says. It also can hurt your credit scores significantly because you aren’t issuing payments, making it more likely your account will go into collections.

Also note that debt settlement companies charge hefty fees for their services. Keep in mind that your forgiven debt may be considered taxable income as well.

Step 4: Call your credit card company

“Consumers can use a settlement company [to negotiate], or they can do it on their own,” Jacob says. “There’s no need to pay a company to settle for you. Save the fees and do the work yourself.”

If you’ve decided to negotiate on your own behalf after weighing your options, it’s time to call your credit card company. First, ask for the department that handles debt settlements or collections. You may want to prepare a script beforehand, so that you know exactly how to frame your request.

Clearly and politely explain your financial situation and ask for exactly what you want. The initial answer may be no, but that doesn’t mean you can’t be persistent — even if it takes multiple phone calls.

Document every conversation you have. Write down the names and job titles of anyone you speak to so you can reference them in follow-up calls if necessary.

“You can’t be afraid to ask for a supervisor or the supervisor’s supervisor,” Sullivan says. “The higher you go, the more likely you are to find someone who is willing to make a concession.”

Step 5: Get everything in writing

Once you’ve found someone at the credit card company who is willing to negotiate, make sure you get the terms of the deal in writing.

The credit card manager you made a verbal agreement with may leave the company or your account may accidentally be sent to collections. Anything can happen, so protect yourself by putting it all on paper.

Next steps

Having deep credit card debt can feel as if you’re in financial quicksand — the harder you try to get out, the more futile your efforts. Among the five options we listed, you’ll have to weigh the financial pitfalls and impact to your credit before you decide which is the best way to settle your debt.

But Jacob and Sullivan say not to discount tried-and-true money management strategies before declaring bankruptcy or paying a debt settlement company.

These management strategies include sticking to a strict budget, getting part-time work to boost your income, or negotiating lower interest rates and monthly payments.

For consumers at the end of their financial rope, “all of this can alleviate the debt without trashing their credit,” Jacob says.