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Negotiating With Your Creditors When You’re Past Due


We had two questions from readers who wondered if it was better to go past due with your creditors so that you can negotiate with them.

This is a valid strategy, but it does have some problems. Let’s take a look at the individual situations.

Preston asked us:

I was doing pretty well with real estate until the slowdown hit, then I got stuck with some large payments that made it impossible to keep up. Selling the real estate was impossible and for the past couple of years I used credit cards and robbed Peter to pay Paul.

Rather than go through foreclosure I gave my property to the bank via deed in lieu of foreclosure. My credit scores have already nosedived to 546. My credit card balance is around 60k and all of them are current. The rates range from 9.9% to 28.49%.

Your blog has been very informative and based on what I have read it looks like I should be negotiating hard with my credit card companies. And if I understand some of your advice, I should even consider not making payments to make the negotiation easier. And since my credit scores have already dropped I wouldn’t be hurting myself by doing this. Am I correct in my observations? Thanks.

Thanks for your question Preston. Yes you definitely want to be negotiating with your credit card companies. Normally I would suggest that you try to balance transfer your high interest credit cards to cards with a better rate. But since your credit score has dropped, you may not be able to get approved. That means that you are going to have to go in swinging with your credit card companies, and negotiate some of these interest rates and fee removals.

In your specific situation, you do not want to go past due on your bills – yet. Start by calling your credit card companies and asking them to lower your interest rates instead. Usually, it is easier to get your interest rates reduced if you are not delinquent. You will definitely have to speak with a manager, or possibly even two. The general customer service people you will reach are probably not going to be able to help you.

Just be firm with them. Keep reiterating what a great customer you’ve been, how much you like their services, but that you cannot accept the current interest rates on your card. I would go ahead and tell them you intend to balance transfer (even if you can’t). They won’t know the difference, and it’s a good bargaining point.

Make sure you ask to have any and all fees removed or waived from the card. Do not threaten to close the account, just keep repeating that you need them to help you change the terms.

This is the best case scenario. If you are polite, and persistent, you should be able to get your interest rates reduced. If you call and the rep on the other end is rude, or unwilling to help you, just hang up and call back. Someone there will be able to help you.

Now, worst case scenario here, let’s look at the other part of your question.

And if I understand some of your advice, I should even consider not making payments to make the negotiation easier. And since my credit scores have already dropped I wouldn’t be hurting myself by doing this. Am I correct in my observations?

Going past due at any point will lower your credit score. BUT it will be easier to negotiate things like lump sum settlements, and fee removals. In my experience, it is harder to get interest rates lowered with a record of late payments.

Now, if you do choose to go past due on a couple of your cards so that you can work with the collections department (who have a lot more leeway to help you than customer service does) make sure you do one thing:

You will want to negotiate for them not to report you as late, or to change the information on your credit report. Some companies will do this, some will not. But you can certainly go past due, negotiate to have fees removed, and then negotiate for them to remove the “late” mark on your credit report. Get it in writing though, or its as good as fiction.

Jenna just reviewed an excellent book on this topic – The Guerrilla Guide To Credit Repair. It explains these procedures in a lot of detail. If you do plan to go past due to negotiate, it would be worth it to pick that book up and use the negotiation tactics and sample letters in it.

You can also go past due, get your fees removed, and then challenge the late payment if it shows up on your credit report. So you have a lot of options at this point.

Try negotiating with your credit card companies before you pay late though, there’s no point in putting additional black marks on your credit report if you don’t absolutely have to.

Another reader, Jessica, had this question about past due payments and negotiation:

Filed bankruptcy chapter 7 and it has been discharged. I have a credit account that existed before the filing but was not included because it had a zero balance. Since then, I incurred a balance on it that I have not been able to pay it off. Would it be better to call the creditor and make small payments on it or let it go to collection and work out a partial lump sum payment with the collection agency? If I let it go to collection will my credit suffer even more?


It will always be better to deal with the credit card company rather than a collections company. There are several reasons for this:

  1. You can negotiate with the credit card company to change what they have already reported and clean up the past due marks on your credit report. A collections company will not be able to do that.
  2. If the credit card company sells your debt it will show up on your credit report as “charged off” which looks really bad. Charged off after a bankruptcy looks worse.
  3. When the credit card company sells your debt to a collection agency, it will open up a new past due account on your credit report, so it’s like getting burned twice for the same account.

Definitely call and make payment arrangements with your credit card company. You can even offer to make a lump sum settlement with them – you don’t have to wait for the debt to be sold. Check out the articles below – they’ll give you more information on how to negotiate with your credit card company.

Thanks for your question!

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