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Can You Negotiate Credit Card Debt?

Dear Experian,

I am completely overextended with credit card debt but pay my bills on time. If I call a credit card company and negotiate a settlement or lower interest rate with payment plan, how does that affect my credit?

– KND

Dear KND,

If your credit card debt has become unmanageable, you are wise to seek help and explore your options, including negotiating the credit card debt. It is always a good idea to contact your creditors and notify them that you are having trouble before getting to a point where you have begun to miss payments.

Negotiating Credit Card Debt

Each credit card company will have their own policies, but there are several different options that may be available to help someone struggling to make payments. You may be able to call and request:

  • A reduced interest rate
  • Reduced minimum monthly payments
  • Forgiveness on certain fees, such as over-the-limit fees and late payment fees
  • Temporary forbearance of payments
  • A debt settlement agreement

Every bank or credit card company is different, so take the time to contact each one to advise them of your situation and ask about your options.

How Negotiating Credit Card Debt May Impact Your Credit

Be aware that in most cases, notifying the creditor that you are looking for options to reduce your balance or reduce payments will result in your account being closed to further charges. Because closing your credit card accounts will cause your utilization rate to increase, you will probably notice a drop in credit scores when the accounts are closed.

With a debt settlement plan, the creditor agrees to accept an amount that is less than the full balance owed to settle the debt. Once the lower amount is paid, the account will appear on your credit report with a status of settled. Even if your account has always been paid on time, the status of settled is considered negative because it means you did not pay the full amount as agreed, and your credit scores will reflect that.

Whether or not other options are available depends solely on the creditor. How options such as negotiating a lower interest rate, reduced payment amounts, or deferred payments will impact your credit depends on how the creditor reports the information. When discussing options with your creditors, make sure you ask how any agreement made will be reflected on your credit report.

For example, your creditor may view an interest rate reduction as a settlement of the debt and report it as such. Statements indicating that you are paying under partial payment agreement or that the account payments are being managed through a debt management program will not affect your credit scores directly. However, the statements could influence lenders’ decisions if they review your credit report manually.

Although these options can help you get out from under crushing credit card debt, there may be consequences, such as tax implications, to consider, as well. For example, amounts that are forgiven by the lender might be considered income for you. In addition to discussing debt management options with your credit card company, consider taking with a financial advisor or certified credit counselor before deciding which is best for you.

Thanks for asking,
The “Ask Experian” Team

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