When you accumulate a significant amount of credit card debt and it becomes overwhelming, you must work with the credit card company to find a solution. When a bank recognises your inability to pay, their focus shifts from profit generation to loss recovery. This change may allow you to negotiate with your credit card company to settle your debt without having to pay the full balance. If you do not feel confident negotiating on your own, you can seek professional assistance (e.g., debt settlement companies, credit counselors, or lawyers). You must adequately prepare before negotiating. When the negotiations are finished, you must put your agreement in writing.
Part 1 Understanding Your Situation
1. Examine your credit card situation. While it may appear to be counterintuitive, credit card companies are more likely to settle large debts. Because credit card debt is unsecured, they understand that if you file for bankruptcy or ignore the debt, they will receive nothing. When your credit card debts are smaller, bankruptcy does not loom over your case, and it is easier to repay the full amount you owe.
2. Understand the generally accepted credit card negotiation standards. Credit card companies settle debts on a regular basis using widely accepted methods. While it is not impossible to reach a more one-of-a-kind agreement, it may be difficult. The majority of credit card companies settle in the following ways:
Moving payment dates
Reducing interest rates
Forbearance (not making any payments for a period of time)
Lump sum payments, which is a one time payment in exchange for the credit card company’s debt forgiveness
Repayment plans, which are usually based on your income and expenses
3. Determine the type of negotiation that is most likely to occur. Negotiations can take many forms, and each will influence how you negotiate. If you only have one credit card with the company you want to negotiate with, it will most likely be a one-time negotiation in which you will not have to interact with the company again once the settlement is reached and fulfilled. If you have more than one credit card with this company, or if the settlement you reach will result in a long-term relationship with the company, you may need to negotiate differently. Recognizing the type of negotiation that is likely to occur will assist you in determining how to approach the negotiation.
For example, if the negotiation is likely to be a one-time event, you may be able to negotiate more aggressively, which may jeopardise relationships. However, if you will need to work with the credit card company again, you may not want to be aggressive and jeopardise your relationships. Consider these points as you evaluate your negotiation strategies.
4. Examine the type of conflict you will encounter. Conflicts arise in two ways during most negotiations. First, agreement conflicts occur when your position contradicts the credit card company’s beliefs and opinions. Second, resource allocation conflicts arise when two parties cannot agree on how something should be divided. Some negotiations may feature only one type of conflict, while others may feature a mix of the two. Understanding how conflicts arise and the forms they take will assist you in planning and focusing your negotiation tactics. These types of conflict can arise in the context of credit card debt in the following ways:
When you believe your payment date should be pushed back but the credit card company has a policy of not doing so, an agreement conflict may arise.
Resource allocation Conflicts may arise if you believe the debt should be settled for a specific dollar amount without interest, while the credit card company believes you should pay more to have your debt relieved, which should include interest.
5. Think about what the negotiation means to you. Consider whether you are negotiating because you have no choice or because you see an opportunity. If you are negotiating because you have no choice, you will most likely have less bargaining power throughout the process. If, on the other hand, you are negotiating because you see an opportunity, you may have more negotiating power and be willing to walk away without reaching an agreement.
For example, if you are negotiating a lower interest rate on a credit card because you heard about a friend’s rate on the same card, you are negotiating because you see an opportunity. Because you are not under pressure to reach an agreement in this scenario, you can be more aggressive and concede less.
If, on the other hand, you are negotiating a lump sum settlement because you are unable to make credit card payments, you are most likely negotiating out of necessity. In this case, you may have to make more concessions to the credit card company because you feel obligated to reach an agreement.
6. Create the best possible alternative to a negotiated agreement (BATNA). You must weigh potential settlements against the consequences of failing to reach an agreement with the credit card company. Consider what your best option is if you are unable to reach an agreement. Your best alternative is referred to as your BATNA. For example, if you are unable to reach an agreement with your credit card company, you may file for bankruptcy or obtain a loan to pay off the debt. These options are potential BATNAs.
The value of your BATNA will assist you in determining your reservation price, which is the most you would be willing to pay, or the least you would accept, to close a deal during negotiations. For example, if your BATNA is declaring bankruptcy, the cost of bankruptcy must be calculated. Assume a $10,000 cost plus the loss of certain assets (e.g., cars and homes).
Once you’ve determined the cost of your BATNA, you’ll be able to weigh any settlement offer against it. You should reach an agreement if it is better than your BATNA. However, if a settlement offer places you in a worse position than if you accepted your BATNA, you should decline it. For example, if the credit card company offers to pay off your debt but requires you to pay $15,000 and give up your home, you may choose to walk away and use your BATNA.
7. When considering solutions, be inventive. The more options you have while preparing, the more options you will have during the negotiation process. While most credit card companies use traditional settlement methods (such as lump sum payments and repayment plans), you should not limit yourself to them. In any negotiation, the goal is to reach an agreement that benefits both parties. In this case, you want to pay off your debt as quickly as possible, while the credit card company wants to recoup as much money as possible.
Make a list of all the ideas that come to mind. Don’t be concerned about whether the credit card company will accept it or whether you think the idea is crazy. Consider both your own and the credit card company’s interests when brainstorming ideas.
For example, if you want to get rid of credit card debt, think of creative ways to do so. You can obviously pay in cash, but you could also pay with property or services (e.g., extra cars or homes you have, or maybe you can work for the credit card company to repay your debt if you have a skill they need).
8. Consider who should be involved. Make a list of the credit card company employees who have the authority to negotiate and make binding decisions about your debt. Negotiating with low-level employees who will need approval from managers is not a good idea. These employees frequently do not understand what is and is not appropriate, and you may waste your time as a result.
Before beginning formal negotiations, contact the credit card company and find out who you need to speak with to reach an agreement. Talk to them briefly and confirm that they have the authority to make decisions. If they are, get their contact information so you can set up a time to negotiate after you have finished preparing.
9. Consider the time constraints. The longer the negotiations take, the more debt you may accumulate and the worse your credit may suffer. Furthermore, if you have retained the services of a lawyer, their legal fees may rise as more time is spent negotiating. Incorporate these ideas into your planning. For example, if you anticipate that negotiations will take a long time, ask the credit card company to freeze your account so that you do not incur additional debt during the negotiation period. Additionally, ensure that your lawyer is working diligently so that you do not incur unnecessary legal fees.
Part 2 Hiring Help
1. Speak with a credit counsellor. If you are hesitant to hire a debt settlement company, consult with a reputable credit counsellor first. These people will go over your entire financial situation with you in an attempt to help you budget and manage your debt. Credit counsellors can also provide you with educational materials and workshop opportunities. Most initial consultations last about an hour, and you will usually be able to follow up as needed.
To locate a reputable credit counsellor, go to the U.S. Trustee Program website and select from the list of government-approved organisations.
2. Engage the services of a lawyer. If you are confronted with large debts and possibly illegal collection practises, you should consider hiring a lawyer to assist you in negotiating. Lawyers specialising in credit card debt and collections will know who to contact and how to contact them because they are trained professionals. They will assist you in preparing, negotiating, and finalising a settlement. Ask your friends and family for referrals when looking for a lawyer.
If you are unable to obtain a good recommendation, you should contact your local bar association’s lawyer referral service. After answering a few questions about your legal issue, you will be contacted by a number of qualified lawyers in your area.
3. Investigate debt settlement firms. Debt settlement companies negotiate on your behalf in order to settle your credit card debt for a lower amount than the full amount. Make sure you do your homework before hiring a specific company. Begin by inquiring about the company’s reputation with your state attorney general and local consumer protection agency. These organisations will assist you in determining whether the company you are considering is reputable and trustworthy. Additionally, conduct a simple internet search using the company’s name plus the word “complaints.” Take a look at what others are saying about the company.
If you decide to work with a debt settlement company, they will charge you a fee for their services, which will include keeping an account for the settlement money. The remaining fee will be calculated as a percentage of the amount you save as a result of the settlement.
4. Examine the dangers of debt settlement companies. While hiring a debt settlement company may appear to be a simple solution, there are risks. These companies, for example, frequently require you to put money aside each month, for up to 36 months, in a dedicated account managed by a third party. It can be difficult for many people to save this much money for such a long period of time. Furthermore, there is no guarantee that the debt settlement company will be able to successfully negotiate a settlement. To get paid for their efforts, they may settle for far less than you would prefer. Furthermore, these companies frequently request that you discontinue making regular credit card payments, which will have a negative impact on your credit report.
Before you hire a debt settlement company, make sure you can reduce the risks by budgeting carefully and demanding a reasonable settlement.
5. Avoid scams. Some debt settlement companies run illegal practices to try and get money from you. Avoid doing business with companies that:
Charge fees before they settle your case
Promise that debt collectors and lawyers will stop contacting you
Guarantee the type of deal they can get (e.g., they will settle for five cents on the dollar)
Part 3 Negotiating with the Credit Card Company
1. Determine where and how you will bargain. Unless you live near one of their offices, most credit card companies will prefer to negotiate over the phone. When two parties do not like each other, remote negotiations are often preferred, whereas face-to-face negotiations are beneficial when the parties do not know each other.
If you and the credit card company have decided to negotiate in person, you must decide where the negotiation will take place. If you have hired a lawyer, they may prefer that you conduct negotiations at their office. This could be a power play designed to sway and irritate the credit card company.
However, if you are negotiating on your own behalf, you may be required to meet with the credit card company at their own office. However, this may not be a bad thing because it allows you to get a sense of where they work and the culture in which they work. This information can then be used to aid you in your negotiations.
If at all possible, bring a lawyer to any face-to-face meetings to ensure your rights are protected and the credit card company understands you are serious about making a deal.
2. Maintain a low profile throughout the negotiations. Silence can often work in your favour. The majority of people will try to fill the silence by speaking and rambling on. This frequently results in the credit card company disclosing information that is beneficial to you. Instead of speaking aimlessly, ask pointed questions to gather information that will assist you in finding a solution.
3. Engage in the negotiations emotionally. Look disgusted and offended when the credit card company says something you disagree with. These actions will demonstrate to the company that you are not willing to take chances and that you require a reasonable solution. Furthermore, if you make a big deal out of minor issues, you may confuse the credit card company and later concede them without giving much up.
4. Make a first offer that is self-serving. While you may believe that allowing the credit card company to make the first offer is advantageous, this is not always the case. In fact, because the first offer is usually the focal point (a.k.a., anchor) of the rest of the negotiations, making the first offer gives you control over how the negotiation proceeds. However, if your first offer is not well-informed, you risk alienating the credit card company and failing to reach a settlement at all.
If you intend to make the first offer, make one that can be supported by a substantial amount of evidence. This will give you control over what happens next.
5. Present your counterpart with a number of options. Give the credit card company options. You will learn about the other side’s values as a result of this. You can shuffle and throw out new options based on how each offer is received. Your adaptability will also be interpreted as a sign of goodwill.
Offer a lump sum payment as well as a forbearance option, for example. If the credit card company rejects the forbearance option, offer a repayment plan instead. In this simple sequence of events, you will have demonstrated your adaptability while learning that the credit card company is desperate for money (because forbearance would require them to freeze the account for a period of time before they ever receive any money).
6. Maintain your position. Continue to make quality counteroffers without giving up too much as the negotiations progress. In fact, if the credit card company makes the first offer, consider countering with your original offer. This will assist you in avoiding the first offer’s anchor.
7. Experiment with showing your hand. If you can’t come up with a solution, tell the credit card company what your BATNA is. However, do not simply state, “This is my best option.” Instead, inform the credit card company that you are considering other options but would like to reach an agreement. When your BATNA is bankruptcy, this can be extremely persuasive in the context of a credit card company.
This is because if you file for bankruptcy and your credit card debt is unsecured, the credit card company may not be able to recoup any of their losses if the bankruptcy court forgives that debt. If you notify the credit card company that you are considering bankruptcy, they will usually work hard to recoup some of your money.
8. Accepting the first offer should be avoided. Even if the credit card company’s initial offer is attractive, do not accept it. See what concessions can be made and, if necessary, return to their initial offer.
Part 4 Formalizing the Agreement
1. Determine who will write the contract. Determine who will formalise the agreement in writing if you and the credit card company reach an agreement. In general, especially if you have the assistance of a lawyer, you will want to be in charge of drafting. You have complete control over the terms and language of the agreement when you draught it.
Larger credit card companies, on the other hand, will have forms and templates that they use. They might ask you to agree to the language they’ve been using for years. If you do not have a lawyer, this may be your only option.
2. Clearly state the terms of your agreement. If you are able to draught the agreement, make certain that you include everything that was discussed during the negotiations. No detail, no matter how minor, should be overlooked. In general, your contract should include at least the following:
The total value of your agreement (e.g., how much you will have to pay and how much debt is being forgiven in return for your payment).
There are no deadlines for lump sum payments or repayment plans.
A description of the debt being forgiven, as well as an unambiguous statement that the agreement, if executed, will fully and completely forgive that debt.
A description of how the credit card company will report the debt to credit bureaus. This language can have an impact on your credit report, so you should try to persuade the credit card company to state that it was “paid” rather than “paid late” or “settled.”
3. Make room for signatures. Make sure to leave space at the end of the agreement for each party to sign and date it. Each party should be able to print their name, sign their name, and write the date it was signed.
4. Put the agreement into action. Finally, you must obtain the credit card company’s signature on the agreement. Check that whoever signs it has the authority to bind the company. In order for the agreement to be executed, you must also sign it.
Understand that, even if the debt is unsecured, credit card companies can still sue, obtain a judgement, and seize any free assets to apply to the debt owed to them.
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