Negotiating Credit Card Debt
Because credit card debt is the most common type of negotiated debt, we have devoted this page to the topic of negotiating with credit card companies.
Credit card companies are not really regulated by federal law, other than they have the duty to disclose the terms and conditions to you when you apply for their card, and they have a duty to investigate and fix any billing errors that occur on your account within 60 days. But other than this, Congress has given them a free hand to do what they please.
For this reason, you can forget the warm, fuzzy caring sentiment that credit card companies put forth in their advertising. Think about it -- they often charge people 24% or more in interest -- your local loan shark has more scruples!
How bad do they treat their customers? Stories in the press tell of interest rate hikes from 7% to 24% for paying late once; refusing to remove late charges when customers pay late because of emergency medical conditions, and so on. In fact, most credit card companies adopt policies that encourage you to pay late or go over your limit so they can tack on added fees and raise your interest rate. These fees bring in extra millions each year, making the credit card business one of the most profitable around, so they certainly don't want to negotiate with you to lower them or settle your account for less than what you owe. Dozens of class action lawsuits have been filed against all of the major credit card companies for their unscrupulous activities. They have been forced to pay millions in restitution.
Keep in mind who you are dealing with before you begin negotiating with a credit card company. Your sob stories are only going to fall on deaf ears, so don't waste your time using them as a reason for bargaining. Remember, as long as you manage to send in your payments on time month after month, they are not interested in settling with you. You can tell them you and your family now lives in an alley behind a supermarket because you can't pay your rent and make your credit card payments, and they still wouldn't care. This is not an exaggeration.
When you are negotiating with a credit card company, you must remember the golden rule: An unsecured creditor will always chose the option that brings in the most amount of money with the least amount of risk and cost.
This means that if you miss a few payments, they have figured out that the best option for them is to lower your interest rates and perhaps the amount you pay each month in order to keep you paying for as long as possible. If you have fallen behind, chances are they will enroll you in their hardship program if you contact them today.
If you default on the account altogether, whether to sue you or write off the account is purely economic. They will choose the option that brings them the most money with the least amount of risk and cost. They are not interested in justice or revenge or what is right and wrong. For example, thieves who have been captured on store surveillance systems using stolen credit cards are caught and identified by the police. The credit card companies, from whom these thieves have stolen thousands of dollars, will not prosecute even though they would likely win in court. Why don't they prosecute? -- Because it costs too much. A more cost-effective option for them is to write off the theft as a loss and recover their money by raising the interest rates and fees they charge all of their customers.
Some of the big credit card banks automatically write off debt when they receive notice from a bankruptcy court that a customer has filed Chapter 7 bankruptcy. They don't even bother to put up a fight, even if the amount owed them is rather large, because they know from experience they will likely get nothing since it is unsecured debt. Again, experience has taught them that the best option for them is to write off the debt as a loss and recover their money by raising the interest rates and fees they charge all of their customers.
A recent trend in the credit card industry is to NOT lower the interest rates of those who have signed-up with a credit counseling service. Why? Because they figured out that many of the people who signed up for credit counseling were doing so just to get a lower interest rate. Now, they often balk at a lower rate or demand proof that the participant proves that he has real debt problems before agreeing to new terms. In addition, they once allowed credit counseling services to keep 15% of what they collected; however, they decided it was costing them too much, so they lowered it to 8%. Again, credit card companies have done this because they think it is the most cost-effective option for them.