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Negotiating a Credit Card Debt Settlement

March 04, 2019 · 5 minute read

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Negotiating a Credit Card Debt Settlement

There is a sinking feeling in your gut that comes with credit card debt. And that’s especially true when you have credit card debt that is starting to feel unmanageable. Let’s be honest: No one loves to be carrying a credit card balance. But to look at your statement each month and know you don’t have a way to pay it off can feel pretty devastating.

While negotiating a credit card settlement might not sound like a fun solution, sometimes it’s the right course of action. Does that sound daunting? Don’t worry, we’re going to walk you through what it means, and discuss ways you can get out from under your credit card debt.

Before we dive in, it’s important for you to know that this is an incredibly complex topic. We’re going to try to break it down the best we can, but please understand that this info is general in nature and does not take into account your specific objectives, financial situation, and needs; it should not be considered advice. SoFi always recommends that you speak to a professional about your unique situation.

The Difference Between a Secured and Unsecured Loan

When a credit card company issues a credit card, it’s taking a big chance on getting its money back, plus interest. It’s more than likely that the credit card you have is considered “unsecured.”

That means that it isn’t connected to any of your assets that a credit card company can seize in the event that you default on your payments.

Essentially, the credit card company is taking your word for it that you are going to come through with the monthly payments.

In contrast to an unsecured credit card is a mortgage, which is almost always secured. Put simply, unlike credit card payments, if you default on your mortgage, the bank can seize your house and put it up for sale or auction. The hope is to recover some of that mortgage money, if not all of it.

Beginning the Process of a Credit Card Debt Settlement

Starting this process usually happens when you have multiple late or skipped payments—not just one. This may begin with an email or phone call to the credit card’s customer service department, or an old-school letter sent by snail mail. You may wind up having to go through a number of customer service reps and managers before a deal is finally struck, but taking the initiative and being proactive are always good first steps.

It also shows them that you are handling the situation honestly and doing what you need to do, however unpleasant it is to admit that you are falling behind on your payments.

How the Company May Respond to Your Request for a Credit Card Settlement

As uncomfortable as that conversation may be, assure yourself that you are doing the right thing. Ultimately, you’re taking control of your financial situation, and that’s important.

A lump sum payment is perhaps the most obvious option, and it means paying cash, and instantly getting out of credit card debt. It’s pretty straightforward and quick. This option lets you pay an agreed upon amount, and then get forgiveness for the rest of the debt you owe.

However, there is no guarantee as to what lump sum the credit card company might go for. It really depends on their policies, but being open and upfront about your situation and your willingness to work with them could help your cause.

Why a Credit Card Settlement May Not Be Your Best Option

Watching your credit card balance grow each month is scary. It’s unfortunate, but you may feel the need to reach out to your credit card company for a credit card settlement. Depending on your circumstances, it may be the only way to stop the hemorrhaging.

If you do reach out about a credit card settlement, your credit card privileges may get cut off. That means, of course, that you can’t use the credit card for any purchases or services, possibly even that same day. Your account may be frozen until a settlement agreement is reached between you and the credit card company. Nothing personal, of course. It’s just business.

It’s also almost certain that if you negotiate a credit card settlement , your credit score may lower. This is because your debt obligations are reported to the credit bureaus on a monthly basis—and if you aren’t making your payments in full, this will be noted by the credit bureaus.

When you negotiate a credit card settlement, you may be able to avoid bankruptcy and give the credit card company a chance to recoup some of its losses. This could stand in your favor going forward when it comes to rebuilding your credit and getting solvent again. It’s a process that certainly doesn’t tickle, but if you can get passed the pain, you can open up a second chance for yourself and your future by taking some proactive steps.

Solutions Beyond Credit Card Debt Settlements

Personal Loan

Consolidating all of your high-interest credit cards into one low-interest personal loan with a fixed monthly payment can help you get on a path to pay off the credit card debt you’re carrying. SoFi personal loans, for example, are completely free of fees (no origination fees, no prepayment fees, and no late fees) and offer a variety of terms, allowing borrowers to pick the one that works best for them.

However, it’s important to know that getting a personal loan means managing monthly debt payments. It requires the borrower to diligently pay off the loan without missing payments.

Transferring Balances

Essentially, a balance transfer is paying one credit card off with another. Most credit cards won’t let you use another card to make your monthly payments, especially if it’s from the same bank. If your credit is in good shape, you can apply for a balance transfer credit card to pay down debt without high interest charges.

Many cards offer an introductory 0% APR, but keep in mind that a sweet deal like that usually only lasts about six to 18 months . After that introductory rate expires, the interest rate can jump back to a scary level—and other terms and conditions may also apply.

A SoFi personal loan can simplify your credit card debt. It can come with a set loan term and interest rate, so there are no surprise interest rate increases. And there are no prepayment penalties or origination fees.

Learn more about how using a SoFi personal loan to consolidate high-interest credit card debt could help you meet your goals.

The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances. This article is educational in nature, is not individualized, and is may not be applicable to your unique situation. It is not intended to serve as the primary or sole basis for your financial or legal decisions.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the
FTC’s website
on credit.


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