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Should You Pay Your Credit Card Bill Late? The Answer May Surprise You


One of our readers, Jay, sent us this question about debt negotiation:

My wife and I earn $145,000 per year combined but have over $600,000 in debt. This includes over $308,000 in mortgage loans for rental properties, over $170,000 in student loans, over $8000 in 401(k) loans, over $18,000 in car loans, and over $93,000 in credit card debt.

Although our debt is exorbitant, we have been making real progress towards paying off debt (over $15,000 in the last 6 months). We have never been late on any payments, and aside from a high-interest credit card that will soon be paid off, our interest rates are pretty manageable.

After reading this article, I am considering a new strategy for paying off debt. When I am ready to pay off the full balance on a card, I would like to hold payment for 2-3 weeks (just before the 30-day past due note would be made on my credit report). Then, I want to negotiate a full payoff at a reduced amount. I would like to do this in a way where a certain percentage of the interest charges are removed from the account retroactively instead of the debt being “forgiven” so that there are no tax consequences or necessary notations on my credit report aside from “Paid as Agreed”. Do you think this is the best strategy?

Thank you for your question Jay! You are certainly being intelligent about your debt, and I am really glad to see that because it means that you will be successful in your negotiations – as long as you are persistent.

I think you have a couple of strategies available to you actually.

Since you are current on your bills, and you want to negotiate your interest rate retroactively (which is an excellent idea because otherwise you will owe taxes on the “forgiven” debt) you might be able to do it while you are current.

Negotiating your debt while you are current won’t be easy to do, but it is the best way to protect your credit score. The truth is, it is always easier to negotiate with the collections department – this is one reason that credit counseling agencies typically hold your payments until you are past due.

However, since you’re handling your debt yourself, you should really go ahead and give your credit card company a call while you are current. Typical customer service reps may not be able to help you do what you want to do, so you will definitely have to talk to a manager.

Really the key, the entire key to negotiating with credit card companies is to be polite, and persistent. Never forget that it is your money! So no matter how many people you have to deal with, or how often you have to hang up and call back, if you don’t give up you will be successful.

Beginning your debt negotiations:

You do have some leverage because you are a good customer and (I am assuming) do not have a history of past due payments or over the limit charges. Go ahead and call each of your credit card companies when you are ready to pay the bill in full. Tell them that you would like to do a full settlement if they are willing to retroactively reduce the interest on your credit card, and see what they say.

If you are told at least three times by three different customer service managers that there is no way they can retroactively reduce your interest rates, then it would be smart to go slightly past due and deal with the collections department.

Collections reps (and especially collections managers) have authority that the regular customer service reps do not. They are the ones who typically remove late fees, renegotiate interest rates, and actually help you get where you are going.

The reason I am advising you to begin your negotiations earlier, rather than later is simple: You are going to want to get everything in writing if at all possible. It may work out perfectly…you may be able to call your customer service departments, have them renegotiate the interest, and make a payment that day. Most likely though, it’s going to be a slow, drawn out process that involves a lot of phone calls, management approval, faxing, and certified letters.

Getting things in writing covers your bases. You don’t want the credit card company coming back later and billing you for the difference because there was no written agreement, and you don’t want to end up getting taxed on the adjusted debt.

You also don’t want your account closed unless it has to be (which sometimes happens when you negotiate, so be careful). Make sure that keeping your account open is a part of the deal and don’t make a payment until both you, and your credit card company have written copies of any agreement.

If you wait until you are three weeks past due to begin your negotiations, then it is entirely possible that you will end up having a late payment record on your credit report. You can certainly challenge it later – so you have options there too, but it’s best to avoid it if you can.

Start early, and be the pain in your credit card company’s rear end that won’t go away. You’ll get your debt resolved! Use going past due as an “ace in the hole” plan, and not your first resort. It is easier to negotiate with the collections department, so if you get nowhere with customer service, it makes sense to try that approach. I just wouldn’t use it as your first approach because it can damage your credit.

In the event that you do end up with a late mark on your credit report, you can use our step – by – step walkthrough for challenging items on your credit report.

Also, in your situation, I would definitely advise picking up a copy of The Guerrilla Guide To Credit Repair – you can get it from your library, or order it used off of Amazon. It has a ton of short sample negotiation letters in it and does an excellent job of explaining the process. In my opinion, it’s the only book you really need to negotiate your debt, and clean up your credit report after the negotiations.

Please feel free to come back, and let us know how things go? If you have any other questions, or run into problems as you negotiate, we are happy to help.

Mr. CC

Have a question for us? Leave a comment below!

If you are negotiating your debt, you can always ask us a question, or discuss your negotiations in the forums.

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