The average American household has nearly $10,000 in credit card debt, and many people are only able to make the minimum payment of 2% of the balance. Even 2% is $200, and by paying the minimum payment, consumers could be paying on the balance for decades before they finally pay it off. Since new legislation will make it more difficult to file for bankruptcy, an alternative to consider may be to try to negotiate a better deal with their credit card companies in order to make it easier to pay off the balance.
Didn’t know you could? It’s absolutely possible. Is everyone successful at getting the credit card companies to work with them? Not all are. But, as Wayne Gretzky once said, “you miss 100% of the shots you don’t take” – so take the shot!
One strategy is as simple as calling your credit card company and asking them if they will lower your interest rate. If you have a good history of making your payments on time, this may be the only option for you. If your credit card company says they don’t do that, try telling them that you got an offer from another credit card company with a lower interest rate. Leverage your good payment history and let them know that while you’d prefer to continue the relationship, it could be a better financial option for you to go with the new credit card with the lower interest rate and transfer your balance. The credit card companies only earn income when they are able to charge interest, so the threat that you’ll transfer your balance puts them on notice that they will be losing money if they don’t work with you.
This strategy is not always a sure thing, unfortunately some credit card companies just don’t lower their rates - period. When they have been receiving your on-time payments, the credit card companies may not be too sympathetic to your financial woes. But if you believe that you are on the verge of missing a payment or defaulting altogether on your credit card debt, asking for a lower interest rate may be your only option.
Another strategy would be to close your account and negotiate a lump-sum settlement for the outstanding balance. With this scenario, the credit card company accepts a portion of your debt and writes off the rest. They're often willing to do this instead of turning your debt over to a collection agency, as it's cheaper just to settle. The settlement amount will vary, depending on your interest rate, your balance and your payment history. This type of settlement comes with a couple of problems of its own, though. What if you don't have the money to settle all at once? If you can't pay your bills on time, you probably don't have the cash to settle at once. Additionally, the amount of your debt that gets written off will show up on your credit report as bad debt, and that will stay there for seven years.
The crazy thing is that if you have a history of paying late, especially if you are more than three months behind, you have more negotiating leverage than the consumer who has a good payment history and are trying to prevent their good history from going bad. While the credit card companies probably will not be willing to lower your interest rate, they will likely negotiate a debt settlement. That is unfortunate, since paying late has probably prompted the credit card company to raise your interest rate in the first place, making it more difficult to make those payments. Still, trying to negotiate a lower interest rate, before negotiating debt settlement, is worth the try; you may get lucky.
The debt settlement strategy is not always a sure thing either, your credit card company may not be willing to work out a debt settlement plan. However, it costs you nothing to inquire about it and negotiating a settlement with them may be cheaper for you than if you consult with a debt consolidation firm. It will also be cheaper, and a better option, than bankruptcy – in terms of mitigating the damage to your credit score. If your credit card debt is substantial and you just can't make the payments, it's worth a try.
Contact Boe Credit Consulting today to learn how you can have the exceptional credit you deserve.
About the Author
Jeff Boe is a graduate of National American University, a Board-Certified Credit Consultant and the President of Boe Credit Consulting. He has successfully rehabilitated his own credit profile and, since 2005, has been working with consumers to educate and help them with improving their own credit.
In 2018 he started Boe Credit Consulting in order to help even more people improve their literacy as it relates to the credit system in the U.S. as-well-as to improve their credit reports and scores so they can be free to realize their financial goals.
Boe Credit Consulting specializes in helping credit-challenged consumers improve their credit reports and scores so that they can achieve their financial goals.
For more information, visit www.BoeCredit.com
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