5 Ways to Negotiate Credit Card Debt and Stop Collectors From Bugging You

girl writing notes next laptop while using calculator
Aileen Perilla/The Penny Hoarder

Picture this: You’re in college, and some guy at a table in the student union offers to give you a hat if you sign up for a credit card.

You know you need to build credit, and while you have a dozen free T-shirts from homecoming week, you do not have any free hats. So you sign up, get approved and put on your hat. A few days later, that card is in your mailbox.

Fast forward 10 years.

You find your trusty hat in a box of things you haven’t opened in several moves. Instead of reminding you of good times and free things, it reminds you that you still have a balance on that credit card.

In fact, you moved across the country for love three years ago and asked the bank to increase your credit limit. And it did!

You’ve got an underpaying job, and the only thing you got from that cross-country move was a bad breakup and more credit card debt thanks to that increased limit.

The point is: No one dives into severe credit card debt on purpose. It creeps up over time in the form of a just-this-once and an I’ll-make-up-for-it.

If you have nothing left to sell and no time for a side hustle, and you don’t qualify for loan consolidation or a balance transfer card, there’s still hope.

How to Negotiate Credit Card Debt

One way you can eliminate your credit card debt is through debt settlement. Debt settlement is the process of negotiating with your creditors to ultimately pay less than what you owe.

The credit card settlement process is long and difficult, but if you’re at the end of your rope, here’s how you can lessen your debt burden and regain your financial stability.

1. Find Out How Much You Owe

First, you need to pull your credit report and see your credit score from at least one of the three credit bureaus.

Your credit report will include all of your credit accounts, all credit inquiries from the last two years, and any debt in collections and public records, such as bankruptcies.

Then you can list all your creditors and the amounts you owe each and see a clear picture of the task at hand. This is also important in determining if you have any debt you’re not legally obligated to pay.

In most states, after six years in collections, credit card debt is considered past the statute of limitations, meaning you’re no longer required to pay it. But that doesn’t keep certain creditors from harassing you into paying on it again. This type of debt is called “zombie debt,” because if you make a payment on it, it restarts the statute of limitations and you’re required to pay it again.

2. Know Your Options

Now that you know how much you owe and to whom you owe it, you need to figure out what you can negotiate for.

And you don’t have to wait until your credit is in the dumps to start negotiating. Here are some ways you can negotiate directly with the credit card company before your debt goes into collections:

  • Moving your payment date. If the timing of your due date impacts your ability to make the payment, you can ask to move it.
  • Forbearance or hardship plan. If your situation is only temporary, your card issuer can allow you to skip a few payments without late fees until you’re back on your feet.
  • Erase late fees. In something called a workout arrangement, the card issuer can eliminate late fees and/or lower your interest rate. If your issue is more long term, this can be a good option.

If your debt is already in collections, or if none of those work for you and you need some outside guidance, here are some other options:

  • Debt management program. This is a great place to get answers, and it won’t hurt your credit. These programs help you pay off your debt in three to five years and are regulated by strict guidelines.
  • Lump-sum settlement. Offering to pay your settlement amount in full will help get you the best deal when negotiating with a creditor.  
  • Payment agreement. You may also be able to arrange a payment plan with your creditor. You can still settle for a lower amount, but you will pay more than you would in a lump sum.
  • Debt settlement company. This is different from a debt management program and worse for your credit, but it will save you time and stress during negotiations.

3. Find the Right Person to Negotiate With

When you call your credit card company, the first person who picks up the phone probably isn’t going to be able to help you — even if they think they can.

You’ll need to be connected to the representative who handles settlements specifically. You can ask for a credit manager or simply someone authorized to make a settlement deal. Every company calls its settlement department something different. Some names include:

  • Settlement arrangement.
  • Workout arrangement.
  • In-house help program.
  • Workout program.
  • Loss mitigation.

If you’re in collections, your debt collector is probably already calling you. They’ll probably have corresponded by mail, so the information should be in the letter.

4. Call Each Company

Once you’re connected to the right person, get their name and ID number, and be diligent in documenting every conversation. And if they agree to something, have them email it to you before you get off the phone.

When you’re talking to creditors, it’s important to first know your rights. Creditors can’t:

  • Curse at you.
  • Threaten violence or jail time.
  • Call you before 8 a.m. or after 9 p.m.
  • Call you at work if your employer prohibits it.
  • Call your friends, except to verify your address and phone number.

Don’t let them pressure you into a payment you can’t afford or that will go toward debts outside the statute of limitations.

It’s also good to have an idea of what you can realistically settle for. Every time your debt is sold to another company, it’s been bought at a lower price. So the more times your debt has been sold, the lower you can negotiate.

If you need to work out a payment arrangement, you’re not going to be able to negotiate as low as if you offer to pay in full. If you can afford a lump sum, start at 30% or less of what you owe and expect to end up paying 40-65%.

Debt collectors work on commission, so they’re motivated to make a deal. Negotiate just like you would for a car or salary. Never take the first offer. Mention that if you can’t settle, you may consider bankruptcy — or use the power of silence to let them negotiate with themself.

5. Call Again, and Again, and Again… and Wait

One does not simply settle their credit card debt in a single phone call.

This process will take several months, include several representatives and end when you have something in writing either stating your debt is paid off or detailing your payment plan.

If the process takes longer than six months, your debt may even be sold to another creditor, with whom you’ll start the process all over again.

If you’re settling with a payment plan, send a registered letter outlining the payment schedule in detail. Never give a debt collector access to your checking account through electronic withdrawals or by paying with checks. Money orders are the safest way to pay your settlement.

When the debt is paid, request that the account be reported as “paid as agreed upon” rather than “settled.” You can also ask that they remove any tradelines associated with the account from your credit report. They may refuse, but it’s definitely worth negotiating for — especially if you’re willing to give them a lump sum.

Advantages of Debt Settlement

Settling is hard, but if you’re in a situation where you can’t afford the amount your debt has ballooned to, the work is worth it.

The biggest advantages of settling your debt are paying much less than you owe and avoiding bankruptcy.

Disadvantages of Debt Settlement

If go the debt settlement route, you can expect long-term effects on your credit score and prepare to pay taxes on the amount forgiven.

You may want to put all the negotiating off on a debt settlement company. While this sounds like an easy out, you’ll pay for it. The company will stop making payments on all your debts, lowering your credit score even more and increasing the number of creditors calling you every day.

Then at the end, you’ll be paying them a fee of 20-25% of the settlement amount.

So before you try to duck out of your debt, check out debt consolidation loans, balance transfer credit cards or a debt management program. They’re better for your credit, save you a lot of time and are easier to manage.

Jen Smith is a staff writer at The Penny Hoarder. She gives money-saving and debt-payoff tips on Instagram at @savingwithspunk.

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