What would you do to get out from under that staggering load of credit card debts? Most people say they’d do almost anything short of committing a crime.
If you feel that you’re drowning in credit card debt, we have kind of good news. It’s possible to negotiate those debts. However, – spoiler alert – it isn’t easy. The credit card issuers aren’t in business to negotiate your debts. Their number one goal is to get paid back every cent you owe. They loan you money via credit cards in good faith – believing you’ll repay them. No bank or credit card issuer is in business to give away money by negotiating debts. That would be a terrible business model.
So, how could you go about negotiating those credit card debts?
It takes three not-so-easy steps.
Step 1: Choose a plan
Don’t even think about contacting one of your credit card companies until you’ve chosen a plan. You have four options.
· Lump sum settlement
· Workout arrangement
· Forbearance program
· Debt management program
· Debt settlement program
There are pros and cons to each of these options. Be cure to research all five before choosing one.
Step 2: List your income and debt
The next step is to take a good hard look at your debt in your income. If you don’t have all your credit card statements, call your credit card companies and ask for a breakdown of your statements. You may find a lot of what you owe is garbage or money you blew in late fees and over limit charges. When you separate these out, you may be shocked to find how much you actually borrowed.
Next, make a list of your income and your spending. You can’t know how much you can realistically afford to pay on your credit card debts until you’ve done this. Break your spending down into two categories – fixed expenses and discretionary spending. Your fixed expenses would include things like your rent or mortgage payment, groceries, insurance premiums, and utilities. These are expenses you must pay first before your credit card debts.
Be sure to build in some wiggle room. If you make your budget too tight, you’re almost sure to fail. Remember that you’ll have expenses that pop up less frequently than weekly or monthly. Your car could need it’s a 3000-mile oil change, your plumbing could back up, or your dog could come down sick. You need to have some emergency money built in your budget to cover these things.
Step 3: Start calling
Now that you know how much you can afford to pay, it’s time to start negotiating. Understand that this will be a marathon and not a 100-yard dash. You’ll probably have to make multiple phone calls to the same credit card company and talk to a bunch of different people. Some of them will even contradict one another. Keep in mind that the credit card companies can and probably will freeze your credit limit after that first phone call.
The first customer service representative you reach will probably not have the authority to negotiate with you – though they may not admit it. Let him or she know you need whatever department handles settlement arrangements, or workout agreements. Every bank and credit card issuer is set up differently, with different department names, policies, and special programs.
When you’re finally able to reach someone with the authority to negotiate with you, write down his or her name and telephone number with an extension. Explain that you need help. Jot down a brief summary of your conversation with the time and date. Keep all of this information together in a notebook.
Be prepared to haggle as this is what negotiating is all about. Begin by summing up your situation. Explain that you’re having a financial emergency. Ask what the credit card company could do or propose your own plan. You may want to use the B word as in bankruptcy. Your ultimate goal should be to get your debts reported as complete, current, and timely.
Last of all, get anything that’s agreed to in writing. This needs to include the fact that the account was paid off (or will be paid off) and when. It also needs to include the amount that will be reported for taxes and what the credit card company will tell the credit bureaus.
Follow the steps you’ve read in this article, and you should be able to negotiate with your credit card companies to get a program that will make it easier for you to repay your debts. Just don’t wait too late to ask for help. You may be well-intentioned but if you don’t take action, you could end up in a financial hole from which you’ll never be able to recover.