Can You Negotiate Credit Card Debt Yourself?

Debt settlement companies advertise that they can negotiate with your creditors. What many people don’t realize is that you can do it yourself, for free. It takes some preparation and a few uncomfortable phone calls, but you keep control and avoid company fees. Here’s how.

What you can ask for

What makes sense depends on where you are:

Your situation	What to ask for
Current, but struggling	A lower interest rate or a hardship plan
A few payments behind	A payment plan to catch up, with late fees waived
Charged off or in collections	A payment plan or a lump-sum settlement for less than the balance

Card companies are usually more open to settlements once an account is seriously behind or has been charged off. But don’t stop paying on purpose to get a better deal. That brings fees, credit damage and possible lawsuits. Read what happens if you stop paying your credit cards.

Step 1: Confirm the debt

If you’re dealing with a collector, make sure the debt is yours and the amount is right before you negotiate. The CFPB suggests getting the collector’s written validation notice first. See how to ask a debt collector to prove a debt. If the debt is very old, check whether it’s time-barred before you pay anything.

Step 2: Know your numbers

Work out what you can really afford, either as a monthly payment or a lump sum, without shorting rent, utilities or food. A bare-bones budget helps. Don’t agree to anything you can’t keep up with. A broken agreement can leave you worse off.

Step 3: Make your proposal

• Explain your situation briefly and honestly: job loss, medical bills, reduced hours.
• Make a specific offer. For a settlement, start lower than your maximum, so you have room to negotiate.
• Stay calm and polite, but firm about what you can afford.
• Ask questions: “Is that the best you can do?” “Can you waive the late fees?”
• Take notes: the date, the person’s name and what was said.

The CFPB notes you may have more room to negotiate with a collector than you did with the original creditor. It can also help to work through a nonprofit credit counselor or an attorney.

Step 4: Get it in writing before you pay

This is the most important step. The CFPB says to get the plan and the collector’s promises in writing before you make a payment. A settlement letter should say:

• The amount you’ll pay and the due date or dates.
• That the payment settles the debt in full, and the remaining balance is forgiven.
• How the account will be reported to the credit bureaus.
• That collection will stop once you’ve paid.

Step 5: Pay safely and keep records

• Pay in a way you can track, and don’t give ongoing access to your bank account. Make each payment yourself.
• Keep the settlement letter and proof of payment, possibly for years.
• Check your credit reports afterward to make sure the account is updated. If it isn’t, dispute it.

What settling means for your credit and taxes

• Credit: a settled account is usually reported as settled for less than the full balance, which is negative. It’s generally better than an unpaid collection, but worse than paying in full. See how debt relief affects your credit score.
• Taxes: forgiven debt may be taxable income, and you may get a Form 1099-C. Read is forgiven debt taxable.

When to get help

• A nonprofit credit counselor through the NFCC can help you plan, and may offer a debt management plan.
• A consumer attorney or legal aid if you’ve been sued. See what to do if you’re sued for a debt.
• If you consider a settlement company, know what you’re paying for. Read what is debt settlement first.

The bottom line

You can negotiate credit card debt yourself. Confirm the debt, know what you can pay, make a clear offer, and never pay until the agreement is in writing.

Sources: CFPB: how to negotiate a settlement with a debt collector · CFPB: start with your credit card company · IRS Topic 431: canceled debt