Credit Card Negotiation: Working it Out |
By Siddarth Nagaraj on March 10, 2011
.jpg.aspx?width=75&height=75) Beleaguered by the demands of their creditors to pay their dues, many individuals wish they could talk to their credit card companies, feeling that they have a reasonable case to make in their favor. This is certainly an option and negotiating your credit card debt is possible. However, there are costs to negotiation and these must considering before acting.
One form of card negotiation you could potentially pursue with your credit provider is a workout arrangement. As part of the arrangement’s terms, the bank agrees to change your interest rate favorably by either lowering it or possibly eliminating it, depending on your level of debt and credit record. Additionally, the bank may also suspend future demands for punitive fees such as over-limit charges and late fees which often compound existing credit card debt issues. During the negotiation process, you can also request that prior unpaid punitive fees to be waived but there is no guarantee that the bank will agree to do so given your reliance upon the outcome of the negotiations and their demand for maximum repayment. In return for the concessions made by the bank, your credit line will be cut and you will accordingly be unable to use the card. Your credit score will also be affected, although the settlement’s impact on your FICO score will be determined by your payments to the three credit bureaus (Equifax, Experian and TransUnion) and/or a report on the state of the negotiations sent to the main credit agencies by your credit card company. You can and should always rebuild your credit score by repaying on time as stipulated by the terms of the settlement.
Another compromise that you can attempt to negotiate with your creditors is a lump settlement. Under this arrangement, you pay a large amount of money in one sum. This option is highly attractive to many people because it allows the debtor to negotiate terms under which he or she would pay the credit card issuer a smaller amount of money than what is owed. The preference for lump settlements as an object of negotiation is also fuelled by a perception that debt-related problems can be resolved quickly. However, lump settlements come with many costly complications that can override the benefits of a convenient agreement. Specifically, payment through a lump settlement (particularly if it involves a compromise through which you do not pay your outstanding debt in full) can have devastating effects for your credit score, which is essential to gaining credit that will allow you to make important investments for your future. Furthermore, any damage done to your credit will be durable and will lessen the likelihood of finding other creditors who will be willing to trust you. Credit providers will also report the agreement to the IRS if more than $600 of the principal of your debt is forgiven, possibly resulting in an increased income tax. However, forgiven fees and interest rates should not affect your taxes.
Credit card negotiation includes a wide array of options that could help you reach a compromise with your creditor over your debt. When deciding whether to negotiate your credit card debt, be aware of what forms of negotiation you can pursue and the consequences that are involved. Negotiating your debt can produce an agreement that helps you reach a favorable outcome, but it is important that you bear in mind the price you will pay when upholding your part of the bargain. |
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