Take Back Your Finances #38: What You Need To Know About Negotiating Credit Card Balances

We are now up to week #38 in our 52-Week Take Back Your Finances Challenge. It’s been great, purposeful, productive and beneficial for many that have followed through and completed the challenges. It is so exciting to see where everyone is at in their journey and the positive progress that is being made.

This week we want to take some time to discuss and consider a potential step for those that have debts still owing. The last couple of challenges have been spent reviewing and updating the budgets and the progress on the debt payoff goals; so along with reviewing the debt payoff goals, comes another aspect…the credit card balances.

The idea of negotiating your credit card balances is an actual and real possibility. Even more probable is the opportunity to lower interest rates. We personally, when we were in the heart of our $100k of consumer debt, were able to negotiate interest rates so that the progress we made was much quicker and with greater impact than we otherwise could have done.

So we want to talk about the positives and negatives of looking at reducing either your balances or your rates.

The first thing to know, you will probably not be able to do any negotiating of any kind if you are a normal payer. What we mean by this is if you make payments on time most of the time, pay the minimums in most cases and have a decent track record and are not enduring hardships or do not have an above stellar reputation with the creditor, there probably really is not much you can do. BUT…it NEVER hurts to ask.

Now about reducing your credit balances. It can be done, but it is often done with a price. We do not necessarily recommend trying to negotiate your balances for a few reasons:

1. It’s your mess, not the creditors. You should pay for the things you purchased and went into debt for.
2. Negotiating balances usually means that you will receive dire credit consequences. Rarely is there a balance negotiation that does not negatively impact your credit. In some cases it can be just as bad as bankruptcy. And don’t forget that will stay on your credit record for 7 years. So it needs serious consideration in this regard.
3. As a general rule, you really need to be in dire circumstances and are a hair breadth away from declaring bankruptcy to discuss negotiating your balance. In this case, creditors are more willing to work with you because they don’t want to deal with you going into bankruptcy and will often lower balances and payment minimums.
4. If you have lump sums, you have more negotiating power – many times half of what you owe if you can negotiate and pay it all at once. But again, rarely does this even come without a negative credit impact.

If you want to try to negotiate balances, here’s a few tips:

1. Know what you are wanting to do going into the call. You can call to “see” what they can do to start, but can you pay half now? Can you pay 90% now and see if that will be acceptable, etc.
2. Be aware, if you call to negotiate balances, they may check your credit again. And unless you are in dire circumstances (like impending bankruptcy), this could cause them to raise your interest rate if you are in a worse place now than when you initially got the credit.
3. Whatever deal you do make, be sure that the terms like “paid in full” are in writing. If it has been done on the phone, you need to get the name of the representative and their assigned identification number, date, details and even ask them to email and snail mail the confirmation.
4. Be aware, you may come out of a balance negotiation paying less than owed, but it could and probably will have a negative credit impact. But you can also find out before completing any deal about exactly how this will be reported to the credit bureau.  There is a chance that it will not, depending on the creditor.
5. Finally, another consideration to make is that any balances a creditor writes off is then reported to you as income and you will owe tax on the written off amount.  Seriously, you can see why this is not the recommended approach if you can help it.

Now to talk about negotiating your interest rates. This option is much more doable, but still some things to consider.

1. There could be a negative impact on your credit, but not necessarily and in fact, probably not. Interest rates are negotiated and change all of the time, so you are just hoping for it to be lowered. However, an in potential negotiation, you need to find out if this will negatively impact your credit or how it will be reported and decide if that is worth it. In many cases, it could be worth it, especially since the impact of this ding on  your credit report is not as severe as the the negative reporting of a written off balance.
2. In order to have success in dropping interest rates, your best bet is to be in a really good position. Meaning, have you paid on time for more than 6 months? Have you paid more than the minimum for more than 6 months? Have you not built up more credit with this creditor in more than 6 months? etc. Basically, are you a stellar debtor? If so, you can often reduce your interest rates as a reward for your good credit behavior. This is the approach we were able to take and we had a very positive experience with negotiating interest rates and this automatically lowered our payments…but we paid the original minimum plus more and saw the balances drop much quicker.
3. When you call, be VERY NICE. They do not have to do anything. It is still your debt and obligation regardless. But being nice always gives you a leg up. You are at their mercy and you need to act like it.
4. Know exactly what you can do. Can you apply a several hundred dollar lump sum payment right then in exchange for a drop interest rates? Can you offer some great incentive to them? Or maybe just by simply stating that you have paid on time/early/extra for the past several months, you are hoping they can help you out by dropping the interest rates.
5. Whatever is arranged, be sure to confirm. Just like above, get the name and number of the representative, the date, the summary of the conversation and then ask for email and snail mail confirmation. Be sure it is final and done before you hang up!
6. If they can’t help you now, ask when and what you need to do for the future. If they just simply are not willing to negotiate at this time, simply find out when you are “eligible” or what you can do to have better success next time. Then plan to work towards these things.

So now for this week’s challenge:  Review your debt payout goals again and make a plan on what you can do to attempt negotiating your interest rate (recommended) and whether you are in a place to negotiate your balance (only after serious consideration of the consequences).  Finally, make some phone calls and implement your plan.

It never hurts to ask, but it can hurt to not ask. 🙂 

Need to catch up?  Come join us on this challenge from the very beginning by clicking on the 52-Week Take Back Your Finances Challenge and sign up to start receiving your automated challenge from the very beginning!

One final thing…we also have a Facebook Group where you can engage in discussions, receive encouragement and talk to others that are participating in the challenges too for more ideas! Head to the Be Intentional with The Thrifty Couple Facebook Page HERE and ask to join us there! You can also invite friends and spouses too!

Disclaimer: We are not licenses financial planners. We are only a couple that have been just a hair-breadth away from bankruptcy and found our way out of debt with a goal to now help others. Please make sure to consider any advice given on our site and in this challenge as tips we have used ourselves; they may not work for everyone. If you have questions please make sure to contact a licensed professional.