You’ve got credit card debt that is starting to get out of control and you’ve decided it’s time to take the preverbal “bull by the horns”. So how do you get started? Who do you talk to? Where can you turn for help?
Understanding how to negotiate credit card debt just may be the first step for getting your finances back in order.
But first things first there are a few cardinal rules when it comes to negotiating with your creditors.
1. Know what you want.
2. Talk to the right person.
3. Understand the ramifications
4. Get it in writing.
5. Seek help
Being prepared with your terms and understanding there may be consequences to face after a negotiation (such as closed accounts or a mark on your credit report) and creating a paper trail are all important factors in your success.
Know what you want
Before contacting the credit card company, take a careful look at your current financial situation. Look at your budget and figure out how negotiating your credit card debt will help you reach your financial goals. Ask yourself these questions:
Do you need a lower monthly credit card payment?
Ask for a lower rate. If you’ve been making payments on time, you can ask your credit card company if they’d be willing to lower your interest rate. This could in turn reduce your monthly payment. With a lower rate, more of the money you pay would go towards paying down your principal balance instead of going towards interest.
Are you looking to eliminate all your debt with one large payment?
Make a settlement offer. If you have a chunk of cash, but it’s not enough to pay off your entire balance, ask your credit card company if they are willing to accept a lesser amount as payment in full anyway.
Do you need a financial reprieve for a month or two?
Ask to skip a payment or two. If you’re having temporary financial issues, but you expect things to return to normal soon, you can ask your credit card company if you could miss a payment. If you are able to work out this type of arrangement, make sure you understand how the skipped months will negatively reflect on your credit report.
Talk to the right person
Once you decide what you want to ask for, make sure you’re speaking to the right person from the credit card company. The first person you speak to when you call is likely to be a customer service representative. You may find that this person probably won’t have the authority to work out a deal with you. But don’t give up. Instead, ask to speak to a manager or someone who is able to make decisions. Some companies have designated departments that are dedicated to helping customers work out arrangements. Be sure to write down everyone you talk to including their name, title, and telephone number. After each conversation, document the day and time that you spoke with a person, and the details of your conversation.
Understand the consequences
If you negotiate a lump sum settlement with your credit card company, and they forgive the unpaid amount, the forgiven amount may be reported to the IRS on a form 1099-C, especially if it’s more than $600. So you’ll likely be taxed on that amount as income.
If you defer payments for a month or two, you will still have to pay back the money you owe and may be charged interest during timeframe when you didn’t make payments.
Get it in writing
Most importantly get it in writing! Miscommunication, confusion over the terms of the negotiation and lack of follow through can result in a negation gone wrong. It is important to request they include in the written offer what amounts will be paid and when, and whether or not the payments satisfy the obligation. If you agree to a settlement, don’t send payment until you have received the agreement in writing.
Sometimes negotiations with creditors don’t work out, we can’t all be William Shatner If you’re unable to negotiate with your credit card company or are just are not comfortable calling your creditors you may want to seek the help of a debt relief company.
A debt relief company can help you look at your whole financial picture and help you negotiate with your creditors. If you are thinking about seeking help may sure you choose a reputable provider that is interested in your overall financial well being and can offer you the resources you need to get out of debt and stay out of debt for good.
Have you ever attempted to negotiate with your creditors? What was your experience like?