Some of the most important advice I can give you in dealing with credit card companies, or just about any company, is “It can’t hurt to ask”.    There are millions of dollars paid in fees and late charges every month that companies are willing to waive, but only if you ask.

Balances Are Now In Play

It used to be that annual fees, late fees, and even interest were the most people could ever hope to recover from a friendly customer service agent.    Now, the game has expanded to include the actual balance.   Thanks to millions of people defaulting on their debts, credit card companies are now willing to negotiate down part of the original balance in their effort to get payment.   This article in the New York Times has generated a lot of interest in those concerned with negotiating their credit card debt.

Lessons To Learn

The article talks about one card holder whose offer of 50% of his balance is quickly accepted by his bank.   The lesson I take from this is don’t give away too much.      I would start very low, and go up only incrementally until a deal is reached.    Case in point, later in the article there is an example of a bank that accepts a mere 35%.

Another lesson is to know your leverage.    If you are currently employed, your wages can be garnished, but if you are unemployed or self employed, the bank has less leverage to go after your earnings.    People who are self employed or unemployed therefore have more negotiating power to reduce their debt.

Be Aware

There are a couple of glaring omissions from this article.   First, you may damage your credit by having a bank write off your debt.   Second, you may owe taxes on any debt that is forgiven.    You should investigate these possibilities before committing yourself to this type of negotiation.

Act Now!

Remember that now is probably the best time to make this kind of a deal.    Banks are panicking because there does not appear to be a floor to this recession.   They are concerned that if they do not get money now, they never will.    If you have a huge amount of debt, but you are hanging in there, don’t wait.    Give the bank a call now and try to negotiate before it is too late.   In the future, when the economy stabilizes or even improves, banks will not be as willing to negotiate with your balances.

How To Do It

If you owe a lot of money, and are having trouble paying it back, the last thing on your mind is calling the bank up to discuss it.   Unfortunately, that is exactly the what you must do.    When you get them on the phone, the easiest way that I can think of to approach the subject is that of pure honesty.    Tell them that you know that you have a large balance and that you are having trouble paying it back.   Tell them that you read that some banks are willing to accept a percentage of the balance if paid immediately.    Ask them who would be the best person to speak to about that possibility.   Don’t give your life story to the first person that you talk to, as they may just have to listen patiently before transferring you to someone else.

How To Negotiate

Once you think that have reached the correct person, make sure.    Ask them if they have the authority to reach a settlement with you on the payment of your remaining balance.     They will almost certainly ask you what you are willing to pay.    Give them a very low number.   Remember the quote from the article, “Experts say 5 cents on the dollar is now the most a card company can hope to get for its past-due accounts.”     I don’t think I would actually offer five percent, but I might start as low as 15%, especially if I had no garnishable wages.     They should reject your first offer.   If they don’t, you know it was too high.     When they do, do not make a counter offer, that is there job.    Ask them to make a proposal, then you can counter.   If they don’t counter, try to get them to by saying something like, “What is the least you can accept if I am willing to pay this right now.”    If you do it right, you will get a good deal.     Don’t be afraid to decline their best offer if it is not good enough.   Try it again with a different card, or just call back in a month.

Remember…

To make this work, you have to have cash on hand to pay off your debt, and a means to pay it immediately.    Electronic funds transfer is probably the best option.    Visiting a branch office would be second.    Telling they that you will mail a check in will hurt your negotiating position as they will not get paid as soon, and they will feel that there is a risk that they payment will be lost or delayed, or that the check will bounce.

You got yourself into this situation by racking up your debt.  Fortunately there has never been a better time to take active steps to reduce it.

This entry was posted on Wednesday, June 17th, 2009 at 20:00 and is filed under News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.