Here at MoneyFor, our goal is to help you make informed financial decisions. We are committed to accuracy and impartiality in all our content. It’s important to note that articles may reference products from our partners who compensate us. This influences which products we feature and their presentation on our site, not our evaluation.

Key takeaways

  • Negotiating with credit card companies can significantly reduce what you owe and make payments manageable, but it can negatively impact your credit score.
  • Alternative debt relief methods can simplify payments and reduce interest rates with less damage to your score.
  • The right debt relief method depends on how much you owe, your ability to make regular payments, and your credit score.

Negotiating credit card debt can be daunting, but it can also help you get back on track. American credit card debt reached $1.115 trillion, with the average American owing $6,295 as of January 2024, according to TransUnion. The average interest rate hit 22.63% in February 2024, according to the Federal Reserve.

With a mountain of debt, more people than ever are looking for a way out. Negotiating with credit card companies or settling outstanding balances yourself can feel like the only options. Before you go this route, it’s important to understand how the process works, the potential consequences, and how much you can settle a debt for.

Why credit card companies negotiate debt

Credit card debt is unsecured. This means that when you can’t pay your bill, the company cannot seize your assets. Yes, there are consequences, but they don’t affect your immediate well-being. So when money is tight, credit card bills are typically the first to go.

Companies know this and want to get paid. The more bills you miss, the less likely you are to pay. Creditors can take legal action or sell accounts to collection agencies, but both are costly. It can be in the company’s best interest to negotiate with you and recoup a portion of the amount owed rather than nothing at all.

Customer retention is another reason. Financial institutions prefer to maintain positive relationships with their customers and avoid negative publicity associated with aggressive collection practices.

How does credit card settlement work?

Credit card settlement is when you pay off your balances for less than you owe. Either you or a third party negotiates with the card company to make a lump sum payment or set up a payment plan. The idea behind both is that you pay off your credit card balance but for less than the full amount owed.

How much you can settle a debt for varies widely. Typically, settlements range from 30% to 70% of the total due. The exact amount depends on factors like your financial situation, the account’s age, and the creditor’s policies.

Types of credit card debt settlements

There are three main types of credit card debt settlement. You can negotiate a lump-sum settlement, workout agreement, and hardship plan. Each has its unique benefits and drawbacks.

Lump-sum settlement

A lump-sum settlement is when you settle your balance by making one big payment for less than the total amount owed. Often, the company will agree to accept the principal amount and forgive the accumulated interest and fees. For example, say you owe $8,000. The issuer may agree to a settlement of $6,500 and forgive the remaining balance as it’s actually money you spent.

For the creditor to accept a lump-sum settlement, you must have the cash on hand. They are willing to accept a lower payment only if it means they will receive the money immediately.

A lump-sum settlement can be appealing as you pay off your balances fast and for less. The problems are that you must have a substantial amount of cash saved and your score will suffer.

Workout agreement

A workout agreement is when you permanently renegotiate terms with your credit card issuer to make monthly payments more manageable. The issuer may agree to lower your interest rate or waive it altogether. They may reduce the minimum monthly payment or forgive past late fees. They also may lower your limit or even close your account.

Workout agreements are beneficial if you have a steady income but struggle to keep up with monthly payments due to high interest rates or fees.

Workout agreements are not always bad for your credit score. As long as you make your renegotiated payments on time, your score should benefit more than suffer.

Hardship plan

A hardship plan, also known as a forbearance program, is an option if you’re experiencing temporary financial difficulties due to unforeseen circumstances. Job loss, medical emergencies, divorce, or other significant life changes qualify. If you find yourself in this situation, call your issuer right away and ask what you can do before you start missing payments.

Your issuer may be able to lower your interest rate, suspend late fees, or reduce the minimum payment temporarily. Some may even let you skip a few payments.

Hardship plans have a deadline. They are short-term solutions lasting anywhere from six months to a year. To qualify, you will need to provide documentation of your financial hardship. These programs can prevent your account from going into default, your score from suffering, and relieve stress.

Are you looking for a debt relief program?

Click here to find the right solution for you!

How to determine if you should negotiate your debt

If you have large credit card balances, settlement may be the solution. Consider your full financial situation and what you can afford it pay. Take a look at how much you can settle a debt for to decide if a lump-sum payment is feasible.

Debt settlement may be a good idea if you are:

  • Struggling to make minimum payments
  • Facing mounting interest rates
  • Unable to pay off balances in a reasonable timeframe
  • Receiving persistent collection calls
  • Able to make a lump-sum payment
  • Dealing with short-term financial hardship

Negotiating a settlement can help you pay off what you owe quickly, but it’s not without consequences. It can damage your credit score, but less so than ongoing missed payments or bankruptcy.

Negotiating lower costs vs. settling debt

Negotiating lower costs can make your payments more manageable and set you on the right track to paying off your balances. This is a good route to take if you have a track record of on-time payments or are facing temporary financial hardship. Creditors are more willing to lower interest rates or waive fees if they know you are highly likely to pay them.

Settling debt is a more drastic solution. This will only work if you are already behind on your payments and creditors are desperate to be paid something.

Settlement will likely save you money but hurt your score. If you can afford consistent monthly payments, negotiating lower costs is the better solution for your overall financial health.

Read more about debt relief!

How to negotiate credit card debt

Negotiating credit card debt can be tricky, but usually worth it. You will want to:

  1. Gather your documents and prepare
  2. Know what you want to ask for
  3. Call your issuer
  4. Get everything in writing

Before you pick up the phone, prepare for your call. You may want to write a script for negotiating credit card debt so that you have an idea of what you’ll say.

Here’s a step-by-step guide to help you through the process.

Evaluate your debt

Take a close look at your finances. Gather all your credit card statements and calculate the total amount owed, your monthly income, and essential expenses. Confirm your interest rate and fees. Then, figure out what you can realistically afford to pay.

Knowing what you can afford will help you present a clear case to your creditor. Next, decide if you want to ask for a lump-sum settlement, workout agreement, or hardship program. Knowing “how much can I settle a debt for” can give you the confidence to enter negotiations and seek the best possible terms for your situation.

negotiate credit card debt

Call your credit card company

Once you have a clear picture of your finances, it’s time to contact your issuer. Start by calling the customer service number on the back of your card. Most customer service representatives do not have the authority to negotiate, so you will likely have to speak with the debt settlement, loss mitigation, or hardship department.

Be prepared to explain your situation and why you are unable to meet the current payment terms. Stay calm, polite, and persistent. You may have to call back a few times or ask to speak with a supervisor.

If you’re thinking about bankruptcy, let them know. It may make them more willing to negotiate.

Take detailed notes of each conversation. Write down the names of the representatives you speak with and the specifics of what was discussed.

Ask if you qualify for a relief program

Many companies offer relief programs for customers experiencing financial difficulties. These programs might include lower interest rates, fee waivers, or temporary payment reductions. Ask your creditor if you qualify for any such programs.

Ask for a payment plan

If you don’t qualify for a relief program, or if the available programs don’t meet your needs, request a more manageable payment plan. This repayment plan could involve extending your repayment period, reducing your interest rate, or negotiating a lump-sum settlement if you have some funds available.

Get the new terms in writing

Once you reach an agreement, ask for documentation. For the deal to be legally binding you have to get it in writing. Also, ask about the consequences of missed payments. Some credit card issuers will revoke a deal if you’re late with a payment.

If negotiating on your own feels overwhelming, consider having a company negotiate with creditors on your behalf to reduce the debt you owe. Debt settlement companies can often secure more favorable terms due to their experience and established relationships with creditors.

Alternatives to credit card debt settlement

Credit card debt settlement is the right choice for some people, but it’s not for everyone. There are other ways to find debt relief. Two popular options are consolidation loans and debt management plans.

Debt consolidation loan

A debt consolidation loan involves taking out a new loan and then using that to pay off multiple high-interest credit card balances. This simplifies your monthly payments by rolling all bills into one. Ideally you save money with a lower interest rate. Most personal loans have lower interest rates than credit cards, but it varies by your score, so shop around.

Debt management plan

A debt management plan (DMP) involves working with a credit counseling agency. The credit counselor will negotiate with creditors on your behalf for lowered interest rates and waived fees. You then make one manageable monthly payment to the agency that distributes the money to your creditors. A DMP will help you pay what you owe over three to five years without significantly hurting your score.

Should I choose debt management or debt settlement?

The answer depends on your financial situation. If you can afford to make the monthly payments for a DMP, then this is the better option. You will save money and do less damage to your score.

If you do not qualify for a DMP but are able to negotiate a lump-sum settlement on your own, then debt settlement may be less costly financially. It will still hurt your score. If you choose to work with a debt settlement company, then your score will suffer, and you will pay a fee of around 25% of the original amount owed.

Choose the method that fits your financial situation and negotiation skills.

Go to MoneyFor to learn more!

How does credit card debt settlement affect your credit score?

The amount credit card debt settlement affects your score depends on the method chosen. Workout agreements and hardship plans will not significantly hurt your score as they depend on continuous, on time payments. Your score may suffer initially if the creditor closes an account or lowers your limit causing your credit utilization ratio to increase.

A lump-sum settlement is a different story. In order for the issuer to agree to a lump-sum settlement, you will have to be behind in your credit card payments. Missing a single payment can drop your score by as much as 100 points. Stopping paying your creditors will significantly hurt your score.

Once a settlement is reached, a note will be added to your credit report showing that the account was “settled for less than the full balance.” This negative mark will stay on your report for seven years. However, the impact will lessen over time. Additionally, any forgiven balance over $600 is considered taxable income by the IRS.

Lump-sum settlement is a drastic measure and will hurt your credit score, but credit scores can always bounce back.

Bottom line

Credit card debt can be overwhelming, but avoiding the problem will only make it worse. High interest debt can easily escalate and grow out of control. The best thing you can do is assess your financial situation, weigh your options, and decide which debt relief method is right for you.

If you decide to negotiate, know what you want and come prepared. Once you have your agreement, honor it. Negotiating can be stressful and it’s not without risks, but it can bring sweet relief.

About the author

Rachel Alulis

Rachel Alulis has been the lead editor for Moneyfor’s credit cards team since 2015 and for the financial rewards team since 2023. Before joining Moneyfor, Rachel worked at USA Today and the Des Moines Register. She then established a successful freelance writing and editing business specializing in personal finance. Rachel holds a bachelor’s degree in journalism and an MBA.