Is it Possible to Negotiate Credit Card Debt?

Yes, it’s possible to negotiate credit card debt without going to court and without filing bankruptcy. That’s good news for many Americans. In 2023, Americans used credit cards for nearly a third of their purchases. With interest rates exceeding 20 percent, at least in most cases, this strategy isn’t sustainable for long. Options are available, as outlined below.

Bankruptcy is the best option for people facing large credit card debts. The interest rate is so high that people could make minimum payments until they’re dead and buried and barely dent the UPB (unpaid principal balance). But bankruptcy isn’t an option for everyone. In these cases, a Chicago debt negotiation lawyer can reduce credit card payments. Think what your family could do with an extra two or three hundred dollars a month.

Lump-Sum Settlement

Because of inflation, a dollar today is worth more than a dollar tomorrow. That’s the principle behind lump-sum settlement techniques.

With this negotiation technique, you offer to settle your outstanding debt in one big payment, albeit for less than your balance. For example, you might owe $4,000 between charges, interest and fees on your credit card, but you ask the bank to accept $2,500 (your original credit limit) to settle the account in full. If the card issuer accepts, it forgives the remaining balance.

Lump-sum settlements have two potential downsides. First, a notation may be added to your credit report showing that the account was “settled for less than the full balance.” This note could make your credit score go down instead of up. However, if your account was already past due, the notation may not cause additional damage. You also might have to claim the forgiven debt as income on your upcoming tax return and potentially pay taxes on that amount.

Chicago debt reduction lawyers typically use this negotiation technique if inflation is high and interest rates are low.

Workout Agreement

Incomes increase and decrease frequently. If your income dips significantly, the credit card company knows it’s very hard to wring blood out of a turnip.

Usually, as part of a workout agreement (payment plan), your credit card issuer lowers your interest rate or temporarily waives interest altogether. The bank may also be willing to take other steps to make it easier for you to keep up with your debt, including reducing your minimum payment and potentially waiving past late fees on your account.

Frequently, your card issuer closes your account as part of the arrangement. Although your credit score is likely already damaged from late payments, closing your account (and thus wiping out your available credit limit) could raise your credit utilization rate. Credit utilization is responsible for up to 30 percent of your FICO score. If your credit utilization increases, your credit score may drop further.

Hardship Agreement

Sometimes called a forbearance program, a hardship agreement may be an option if your financial setback is temporary.

With a hardship plan, your card issuer may agree to lower your interest rate, suspend late fees, or reduce your minimum payment on a temporary basis. You might even be able to skip a few payments while you work to rebound from the financial setback.

Unfortunately, your credit history and scores could still be at risk with this type of agreement. Depending on the terms of the bank’s hardship agreement, it may report negative information to the credit bureaus during the forbearance period.

Connect With a Thorough Cook County Lawyer

No matter what kind of financial problem you are having, bankruptcy could be a way out. For a confidential consultation with an experienced debt reduction attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Virtual, home, and after-hours visits are available.

Source:

cnn.com/cnn-underscored/money/credit-card-statistics-and-trends