How to Negotiate With Your Credit Card Company

DO-IT-YOURSELF PROJECTS are a popular way to save money, which is one reason why there are several TV shows and loads of magazines celebrating the joys of hands-on home improvement.

There is another DIY opportunity that gets much less fanfare and can take about as much time as fixing a leaky kitchen faucet – negotiating with your credit card company.

Whether you are trying to knock out an inadvertent late fee or stay out of bankruptcy court, here are some tips on how to take matters into your own hands – and guidance on when you might need help from a pro.

Why Negotiating Is a Good Idea

It might be hard to fathom that you can call the toll-free number on the back of your credit card and convince a multinational financial company to change the terms of your debt.

But remember that you have power – that same company is competing with several other banks for your business and realizes you could easily switch to another card. If you have a large balance on your card, the company still has an incentive to work with you, because it doesn’t want you to miss payments or possibly go bankrupt.

“Banks are interested in maintaining and attracting lifelong customers,” says Peter Klipa, vice president of creditor relations for the National Foundation for Credit Counseling. “Because of this, negotiation can be an option. It is worth exploring prior to going to outside sources.”

Some debt-related situations might be too overwhelming for consumers to handle one-on-one. But if you do your homework, you might get a better deal with just a phone call.

Negotiating When You’re Not in Debt

If you’re a loyal customer and pay your balance on time every month, you might have more leverage than someone who isn’t keeping up with payments, Klipa says.

Some common areas for negotiation are:

  • Late payment fees
  • Interest rates
  • Annual fees
  • Credit limit
  • Payment due date

Even the best customers will make a late payment every once in a while. As long as it’s a rare occurrence, credit card companies sometimes waive that fee if asked.

Interest rates are another ideal topic of negotiation, but most people don’t realize it. In fact, the 2018 Customer Financial Literacy Survey conducted for the NFCC showed that 38 percent of customers carry credit card debt month to month but few have taken steps to lower their interest rates.

Even though there is a chance the company might cut your interest rate just because you called and asked, “You can’t just say, ‘Reduce my interest rate,'” says Brent Wilsey, president of Wilsey Asset Management in San Diego.

The same holds true for trying to get your annual fee waived or credit limit boosted – you have to prepare.

Importance of Doing Your Homework

Researching your credit card company’s rivals is an ideal way to gather evidence to make your case, Wilsey says.

For example, if your interest rate is 18 percent and two similar cards by other companies are offering 8 percent and 10 percent, you might have a chance to get yours lowered.

It’s not easy to get an annual fee waived, but, again, take a look at the competition. If your card charges more than other, similar cards, mention it and see if you can get it lowered or removed.

If you’re a new credit card customer, companies want your credit limit to increase as the years go on, but you’ll need to prove that you’re a good customer by using the card and making your payments every month, Wilsey says. Then, check in with the bank after about a year.

“You’ll never get in trouble for asking if you ask nicely,” Wilsey says.

Another tip: You need to be prepared to walk away from your card if you don’t get what you want from your current company, Wilsey says.

Negotiating When You’re in Debt

A cascade of medical bills. Loss of a job. Divorce. Unhealthy shopping habits. One or more of these situations can leave consumers in a financial crisis. Since people rely on credit cards for everyday and major purchases, those accounts are often the first sign of financial distress.

Thanks to high interest rates and monthly compounding, credit card debt can become a major headache very quickly.

Although you may be tempted to throw up your hands and ignore the problem, it will only accelerate your descent toward bankruptcy.

“People get overwhelmed; they give up,” Klipa says. “When they do that, they’re effectively getting to the same place – the bottom of the credit score scale.”

There is a better way, and it often includes a call to the very company – or companies – that hold much of that debt.

“It’s always a good idea to involve the creditor in the discussions. It’s the No. 1 thing I encourage people to do,” Klipa says.

When You’re in Debt: First Steps

You might try to avoid thinking about your debt as it gets worse each month, but credit card companies never forget.

“While banks know that unforeseen circumstances come up and legitimate hardship happens, providing an unsecured, revolving credit line involves risk,” Klipa says. “Banks will protect their interest.”

So, the sooner you take responsibility for your debt, the quicker you’ll be in a better place financially. You need to review how you got in over your head and forecast what could happen – such as getting a new job or the possibility of more bills – in future months or years.

Kathryn Bossler, a financial counselor at GreenPath Financial Wellness in Detroit, says, “Take a hard look at what you can do. What is realistic for you to do to address the situation? For example, you could make lifestyle changes such as cutting off cable TV or reducing subscriptions or memberships to help align your expenses with your income.

Budgeting plays a huge role, as it forces you to list your fixed and variable expenses, as well as sources of income and debt.

Also, find out if you are delinquent in your payments and what particular steps your credit card company might have taken already.

“If you’re talking to a creditor, you can explain your circumstances and situation and see if they’re willing to work with you directly,” Bossler says.

Remember the 180-day rule, though. If you don’t pay on your debt within that time, the creditor can write off your debt as a loss. You can still negotiate, but your credit score will sustain major damage.

Also, as you look for ways to pay down your credit card debt, you might want to solicit help from family or friends, or consider a home equity line or credit card debt consolidation loan. Loans are available if your credit history is strong.

How Credit Card Companies Might Help

Once you and your creditor agree on how much you owe and you’ve brought up the possibility of waiving late fees and lowering the interest rate, you could discuss a hardship plan, which would help you navigate a temporary financial setback.

The Consumer Financial Protection Bureau, or CFPB, recommends that when you call the company, explain:

  • Why you can’t afford the minimum payment.
  • How much you believe you can pay and for how long.
  • How soon you can restart your typical payment schedule.

Also, your credit card company likely has information on its website about how it can help consumers who are in a financial bind.

“Keep a good, positive, open line of communication with creditors and be honest about what you can afford,” says Bossler.

If you reach an agreement with the credit card company, make sure to get it in writing and sent via email or standard mail.

When to Talk to a Credit Counselor

If you wait too long to address your credit card debt or the debt is so overwhelming you can’t effectively make sense of all the money you owe, it’s an ideal time to turn to a nonprofit credit counselor.

“People come into these situations under a variety of circumstances,” Klipa says. “Typically if they’re behind in multiple credit cards, this is where our agencies come in.”

Here are a few steps you should take when choosing an agency, as suggested by the Federal Trade Commission and CFPB:

  • Search for an organization through the NFCC or the Financial Counseling Association of America.
  • Review the organizations through your state attorney general’s office and/or your state’s consumer protection agency.
  • Get information from the agencies. Be aware that agencies should send this to you free, without asking for details about your financial situation.
  • Interview the agencies you most want to work with.

What Will a Credit Counselor Do for You?

A credit counseling agency will take a holistic approach to understand your situation. Through in-person, phone or online conversations, counselors collect information about income, expenses, assets and liabilities to get a full picture of your debt situation.

Counselors will then construct a budget with you, figuring out what you can afford and helping you make smarter financial decisions.

Once you decide with the counselor how much you can afford, the counselor can handle the negotiations for you and put you on a payment plan, such as a debt management plan, or DMP, Klipa says.

With a DMP, the agency sets up a payment schedule to repay debts and will handle collectors’ calls if needed. After the DMP is completed, the agency will help you re-establish credit.

“The important bottom line is that there are solutions out there for people and they may not realize it,” Klipa says.

Why Debt Settlement Can Be Dangerous

Debt settlement is a method that promises to take care of your debt for a fraction of the cost, but this option has multiple risks.

If you have been solicited by a debt settlement company, make sure you understand this is different from debt counseling. Debt settlement companies can be for-profit entities that don’t consider consumer education and budgeting to be part of the process, Klipa says.

The FTC says you also should realize:

  • You’ll likely need to set aside money every month to put in an account that helps pay for the settlement.
  • It’s possible the credit card company won’t agree to the settlement, which might cause interest and fees to continue unabated.
  • Your credit report and score could suffer if you’re not making regular payments directly to the credit card company.

Avoiding the Need for Future Negotiations

When used wisely, credit cards can be an ideal vehicle to boost your credit score. But they can cause mayhem when your budget and spending are out of whack.

“The tough part is discipline,” Wilsey says. “Make sure your credit card balances don’t get out of hand.”

Part of that discipline is to keep an eye on the market and see if the credit card company is giving you the best deal it can.

For example, if your competitive research and a phone call to your credit card company results in a lower interest rate, “just think about the money that could save you over four years,” Wilsey says.

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