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Can I Negotiate Credit Card Debt Reduction?

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Even though credit card companies are tightening their access to consumer credit, plenty of cardholders have found themselves with too much credit card debt. Now they need to settle their debt with the credit card issuer and start over. For many consumers, bankruptcy may not be necessary or desirable, and it is possible for cardholders to negotiate credit card debt themselves.

John's story is typical - for years he blithely charged dinners and entertainment and home gadgets on his three credit cards. He racked up a credit card debt of $15,000, his interest rate was 18 percent, and his minimum payments were $450 per month. If he paid the minimum every month it would take John 24 years to pay off his credit cards and he will have paid over $15,000 in interest!

Unless John could dramatically restructure his debt he would soon have to choose between paying his mortgage or paying his credit card. Or not eating.

Negotiating Your Own Credit Card Debt

John chose to take matters into his own hands and work directly with his credit card issuers. Anyone can do this, but John was prepared - and you can be prepared, too. Negotiating with creditors yourself can save you money, but it is not without risk. Here are the important tips to keep in mind.

Prepare in Advance

Before you pick up the phone, have your information in front of you. This includes the following:

  • A copy of your most recent credit card bill
  • Any communication from your creditor offering a settlement
  • A specific dollar amount you are able to pay should a settlement be reached. You can aim for either a lump sum or a monthly payment plan

The First Call

You will be routed to a customer service representative in the collections department. Be patient and polite! Collectors must go through a scripted process and verify your personal information including your phone number, employment, and home address. They will want to get a payment from you or at least a promise to pay. Some customer service representatives are authorized to offer settlement arrangements, while others will insist that a settlement agreement is impossible. When you call, be clear that you are interested in a settlement.

Find a Decision Maker

If your customer service representative refuses to discuss a settlement, you have three choices:

  1. Politely thank them for their time and end the call.
  2. Ask to talk to a supervisor or department manager. These individuals may be authorized to make payment arrangements or potential settlements.
  3. If the phone call doesn't get results, write a letter to the department manager describing your plan to pay off or settle your account. Be specific regarding the amount you can pay and when you can commit to making the payments.

One of John's cards was in arrears and he owed $700 in back payments. The debt had been turned over to the collections department of the credit card company. The card company offered to set up a payment plan under the condition that John paid the $700 overdue balance. This would send his account out of collections and back to the normal payments processing department. John readily agreed. He sent his payment of $700 and his card issuer - after terminating his ability to use the card-gave John a special low rate of two percent that would be guaranteed as long as he made regular payments.

The credit card company would rather get some money from you than no money. The goal of settling a credit card account is to get payments reduced to a manageable amount. During the negotiation process, remember to protect yourself. Keep a record of all of your conversations with customer service representatives and include the date, time, and the person's name with whom you spoke. Always get a statement from the creditor with the negotiated amount of the settlement or monthly payment arrangement.

Know your rights! Review the Fair Debt Collection Practices Act by visiting The Federal Trade Commission website. Research the credit card laws in your state. If you do your homework you may be able to settle with your credit card company.