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Negotiating a Credit Card Debt Settlement

August 04, 2020 · 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 isn’t a credit repair company, and always recommends that you speak to a financial professional about your unique situation.

The Difference Between Secured and Unsecured Debt

First, let’s talk about the type of debt a credit card typically is. 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.”

All that means is 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 loan, which is almost always secured. Put simply, unlike defaulting on a credit card, if you default on your mortgage, your lender 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. There’s no such recourse for unsecured debt, but that doesn’t mean defaulting is without consequences.

Credit Card Debt Negotiation Steps

Starting the process of negotiating credit card debt 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 solid first steps.

It also may show 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. Some additional tips for negotiating include:

•   Understanding the exact amount of money you owe on your account before starting negotiations
•   Research the different options available (we go more in depth into these options below)
•   When you are ready to start negotiating, call your credit card company and ask for the debt settlement department
•   Make sure to get the agreed upon terms in writing
•   Types of Credit Card Debt Settlements
•   Lump Sum Settlement

Types of Credit Card Debt Settlements

Lump Sum Settlement

This type of agreement is perhaps the most obvious option, and it means paying cash, and instantly getting out of credit card debt. It’s pretty straightforward and typically 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.

Workout Agreement

This type of debt settlement can involve multiple different options. You may be able negotiate a lower interest rate or waive interest for a certain period of time. Additionally, you can talk to your credit card issuer about reducing your minimum payment or waiving late fees.

Hardship Agreement

This is also sometimes known as a forbearance program, this type of agreement could be a good option to negotiate if your financial issues are temporary. For example, if you were to lose your job you can call your issuer to see if they offer any hardship agreements.

Through a hardship program there are a few different options that are usually offered. Some include: lowering interest rate, removing late fees, reducing minimum payment, or even skipping a few payments.

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. But, again, there are no guarantees—and much depends on your financial habits and needs going forward.

It’s a process that certainly doesn’t tickle, but if you can get past the pain, you may be able to 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 unsecured 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 fixed terms, allowing qualified borrowers to pick the one that works best for them—at an interest rate that, ideally, is preferable to a high-interest rate credit card.

However, it’s important to know that getting a personal loan still means managing monthly debt payments. It requires the borrower to diligently pay off the loan without missing payments on a set schedule, with a firm end date.
A personal loan is known as closed-end credit for this reason, as opposed to a credit card, which is considered open-end credit, because it allows you to continue to charge debt (up to the credit limit) on a rolling basis, with no payoff date to work towards.

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 payments, especially if it’s from the same lender. 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 balance transfer credit 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, conditions, and balance transfer fees may also apply.

A SoFi personal loan can help simplify your credit card debt. It comes with a set loan term and fixed 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.


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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
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