Negotiating Credit Card Debt / Getting a Credit Card Company to Settle

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."