Negotiating Credit Card Debt Before Collection
Negotiating credit card debt yourself with your credit card company (the original creditor) is quite different than dealing with a collection agency. In general, you do not want your debt in collection because a settlement would be doubly damaging to your credit rating with two negatives as opposed to just one when dealing with the credit card company. As such you want to deal with debt trouble as soon as you realize any financial difficulties. However there are small and seemingly contradictory quirks when you attempt to settle your debt this way (more on this later).
You can quickly find out if your account is still with your credit card company by giving them a call. If your account have not been late for 150 days on payments then mostly likely they are still in charge. But if your company tells you the account is in collection then you need to exclusively negotiate credit card debt with the collection agency.
You have two main options when negotiating credit card debt: lump sum settlement and workout arrangement. With lump sum settlement you would pay up front for a portion of the balance and the rest would be settled. Meanwhile a workout removes or lowers the interest and other penalties until you can pay back the full balance. You can try to combine these terms to settle the debt for as little as 50% and negotiate the payment term up to 3 years with 0% interest. Most likely however the deal is not as good (eg. a 2% interest) but it won’t hurt to try.
Understand that most credit card companies have incentives to settle with you if they believe this is the best they can salvage. Similarly if your creditor believes that you only have few assets. Now here is the rub: you want to be proactive and manage your debt before it gets out of hand, but your credit card company won’t be open to any discussions until you are 60 to 90 days late on payment. From their perspective though you can see why. If you are the creditor and your borrower, who has consistently paid on time, suddenly ask you to cut the debt by half, you would have questions as well.
So how can you go about the credit card debt negotiation then? You need to paint an honest picture of your troubles and let them know continuously by (preferably) calling them. Convince them this is their best course of action by citing how you are unable to meet the debt obligation. Again they probably won’t talk until some time has passed, but you should keep communicating. Do not miss any payments with the idea to settle as that would hurt your credit.
Expect a lengthy process with numerous conversations. You can be moved from different departments and even hear contradictory statements from plethora of people. Try to get someone in a position of authority who is willing to work with you. For every discussion, keep careful record of all exchanges including the main points discussed, date, and the person’s name and ID.
The final component of negotiating credit card debt settlement is your credit rating and how you can ease the otherwise detrimental effect on your credit score. Ideally you want your account to say “paid as agreed” and followed by “settled” as your second choice. If you settle for less than the full amount then “settled” is the best you can obtain. Nevertheless, “settled” is still more desirable than “charged off”, which also have tax consequences.