Because
credit card debt is the most common type of negotiated debt, we have devoted
this page to the topic of negotiating with credit card companies.
Credit
card companies are not really regulated by federal law, other than they have
the duty to disclose the terms and conditions to you when you apply for their
card, and they have a duty to investigate and fix any billing errors that occur
on your account within 60 days. But other than this, Congress has given
them almost a free hand to do what they please.
For
this reason, you can forget the warm, fuzzy caring sentiment that credit card
companies put forth in their advertising. Think about it -- they often
charge people 24% or more in interest -- your local loan shark has more
scruples!
How
bad do they treat their customers? Stories in the press tell of interest
rate hikes from 7% to 24% for paying late once; refusing to remove late charges
when customers pay late because of emergency medical conditions, and so
on. In fact, most credit card companies adopt policies that encourage you
to pay late or go over your limit so they can tack on added fees and raise your
interest rate. These fees bring in extra millions each year, making the
credit card business one of the most profitable around, so they certainly don't
want to negotiate with you to lower them or settle your account for less than
what you owe. Dozens of class action lawsuits have been filed against all
of the major credit card companies for their unscrupulous activities.
They have been forced to pay millions in restitution.
Keep
in mind who you are dealing with before you begin negotiating with a credit
card company. Your sob stories are only going to fall on deaf ears, so
don't waste your time using them as a reason for bargaining. Remember, as
long as you manage to send in your payments on time month after month, they are
not interested in settling with you. You can tell them you and your
family now lives in an alley behind a supermarket because you can't pay your
rent and make your credit card payments, and they still wouldn't care.
This is not an exaggeration. Don't let the recent advertisements after the COVID epidemic fool you -- the ads where they wish you and your family well, and some of them are even letting their customers forego monthly payments. But that forbearance is only going to last so long, and then they're going to want their money.
When
you are negotiating with a credit card company, you must remember the golden
rule: An unsecured creditor will always chose the option that brings
in the most amount of money with the least amount of risk and cost.
This
means that if you miss a few payments, they have figured out that the best
option for them is to lower your interest rates and perhaps the amount you pay
each month in order to keep you paying for as long as possible. If you
have fallen behind, chances are they will enroll you in their hardship program
if you contact them today.
If
you default on the account altogether, whether to sue you or write off the
account is purely economic. They will choose the option that brings them
the most money with the least amount of risk and cost. They are not
interested in justice or revenge or what is right and wrong. For example,
thieves who have been captured on store surveillance systems using stolen
credit cards are caught and identified by the police. The credit card
companies, from whom these thieves have stolen thousands of dollars, will not
prosecute even though they would likely win in court. Why don't they
prosecute? -- Because it costs too much. A more cost-effective option for
them is to write off the theft as a loss and recover their money by raising the
interest rates and fees they charge all of their customers.
Some
of the big credit card banks automatically write off debt when they receive
notice from a bankruptcy court that a customer has filed Chapter 7
bankruptcy. They don't even bother to put up a fight, even if the amount
owed them is rather large, because they know from experience they will likely
get nothing since it is unsecured debt. Again, experience has taught them
that the best option for them is to write off the debt as a loss and recover
their money by raising the interest rates and fees they charge all of their
customers.
A
recent trend in the credit card industry is to NOT lower the interest rates of
those who have signed-up with a credit counseling service. Why?
Because they figured out that many of the people who signed up for credit
counseling were doing so just to get a lower interest rate. Now, they
often balk at a lower rate or demand proof that the participant proves that he
has real debt problems before agreeing to new terms. In addition, they
once allowed credit counseling services to keep 15% of what they collected;
however, they decided it was costing them too much, so they lowered it to
8%. Again, credit card companies have done this because they think it is
the most cost-effective option for them.
How do you get a credit card company to settle?
If
you tell them you're struggling with debt, but you haven't missed a payment and
always pay on time, then they will probably not listen to you. Experience
has taught them that people like you always manage to pay them. Why
should they give up such a good deal? You're a cash cow to them.
They couldn't care less about your child who needs a chemotherapy treatment.
As long as you keep sending in payments, they won't bargain with you.
If
you tell them you're struggling with too much debt and you always pay just the
minimum, or you have missed a few payments over the past few months, a credit
card company might lower your interest rate, but they probably won't settle
with you for a reduced amount. They know from experience that
people who just pay the minimums or miss payments are at a very high risk of
default and bankruptcy, so they are willing to be more flexible in this
situation.
If
you want a reduced settlement, you're going to have to use the word
"bankruptcy" when you negotiate with them, and you're going to have
to convince them that the threat of bankruptcy is real. If they believe
that you do indeed have one foot in the bankruptcy door, they will
negotiate. They would be fools not to.
This
doesn't mean that you should contact them right now and state boldly, "If
you don't agree to my terms, I'm going to file bankruptcy and you will lose out
completely." That isn't the way to approach them for two reasons:
(1) they receive such threats a thousand times a day and know that most of them
are bluffs; and (2) creditors don't respond well to threats.
A
better approach would be to use logic and reason. This will require doing
some research. Find out if you can file bankruptcy, and if so, which type can you file.
Also, explore the exemptions available to you under both federal and state
laws. If you don't want to do this, you might be able to take advantage
of a free bankruptcy consultation that many attorneys offer to potential
clients. Specifically, you want the bankruptcy attorney to tell you if
you are a good candidate for Chapter 7 bankruptcy and whether or not your
credit card debt would be completely discharged if you filed Chapter 7.
After
you have this information, figure out how much you can afford to pay your
unsecured creditors. Then approach the creditor politely and
professionally and say to them, basically:
"I am in over my head in debt and I can't take it anymore. I have begun researching the possibility of filing bankruptcy. I have already consulted a bankruptcy attorney and he has advised me that my best option would be to file under Chapter 7 so that my unsecured debts would be discharged. Even though I could have my credit card debt discharged, I don't want to file bankruptcy. I want to find out if I can work out an arrangement with my creditors to pay off my debts in one lump sum with the money I have available. I owe X to creditor 1 and X to creditor 2 [and so on]. I need all of my creditors to agree to this settlement in order for it to work. I have already liquidated my assets by selling my car and buying an older, used one to use to get to work in. I also sold other personal property and managed to get $10,000 for it. The problem is that I have a total of $23,000 in debt, but only have $12,000 in cash. I have nothing left to sell except for the necessities of life. I want to divide up what I have among all of my creditors, giving each one a proportional share. If I can't get all of my creditors to agree, I will probably have to file bankruptcy. I don't want to do this and I know that if I do you will likely get nothing. According to my calculations, if I divided up the $12,000 that I do have among my ten creditors, you would receive X which is _____% of what I owe you. I could send you a check in a week if I can get everyone to agree to the settlement. I know I owe you $________ and it isn't right for me to not pay all of it, but I just can't pay it and I'm sorry. I figured that giving my creditors all that I have is better than giving them nothing, right? What I need to know from you is whether or not your company would be willing to accept a reduced settlement as payment in full. If you can, I can send you a certified check once all my creditors agree to the settlement."
Note
that the debtor above has politely and passively threatened the creditor by
telling him that: (1) he has already liquidated his non-exempt assets (so
there's nothing to seize) except for his wages; (2) this debtor is aware that
he can quickly file bankruptcy to stop a wage garnishment if it comes to that,
so the creditor would be wasting his time with any plans for a lawsuit; and (3)
that he isn't bluffing since he seems to have a general knowledge of bankruptcy
laws, exemptions, automatic stays, and has consulted with a bankruptcy
attorney.
Most
importantly, the debtor managed to state twice that he could get the creditor a
check in a week. Any creditor faced with this situation would want to get
his hands on that check as soon as possible. So, this motivates them to agree
to the settlement. To save face, they might say something like, "Yes,
we agree to this settlement provided that we receive your certified check in
five days."