How to Negotiate Credit Card Interest Rates and Terms

If you have credit cards, there are several reasons that you might want to negotiate your interest rates. Maybe you have been on time with your payments and think that your successful payment history deserves the reward of better terms. Maybe you have gotten better credit offers in the mail but don’t want to switch your card, so you think you can bargain with your lender. Or, maybe you are in over your head in credit card debt and a lower interest rate could help you stay afloat. Whatever the reason, use these tips and suggestions on how to negotiate credit card interest rates and terms.

The Creditor’s Perspective

First, let’s review the creditor’s perspective, because at the end of the day your negotiation is going to have to give them at least some benefits. These are companies whose main priority is to make money, and trying to get them to sympathize with your situation will have little success. Instead, focus your negotiation on why it’s a good idea for them. Here are two main concerns for the creditor, be sure to address them in your attempts to negotiate:

Keeping your business from the competition. If you are trying to negotiate a lower credit card interest rate because you are getting better offers, just come out and say it. Tell your lender that you are seriously considering moving from card X to card Y because of the additional benefits they are offering. Consider mentioning the interest rates and terms you are being offered by the competitor, and use these to bargain and pressure your creditor into matching the offer.

Similarly, if you think that you deserve better terms because of your payment history (maybe you even want a higher credit limit), explain these concerns explicitly. Tell them that you are considering looking for another credit card but were hoping to work something out with them first. If they want your business, they will try to meet your request.

Getting Paid. Creditors want to get paid the most money possible. But if you are falling behind on your payments they are going to realize “Hey this person isn’t paying, there’s a good chance that we will not get all of our money from him/her.” The problem is that convincing them of your financial struggles can be difficult even if you are legitimately struggling. They may not budge until the 90 day mark.

Why 90 days? After 90 days creditors mark unpaid debt as “delinquent.” At this point, your inability to pay has become evident, and they will be more willing to deal. From this point on, they will be looking to see what they can get from you before the 180 day mark. After 180 days, many creditors sell the account to collections. When this happens, they are just getting pennies on the dollar for your debt. But if you pay it back to them, even at reduced rates, they will get more.

Even before 90 days, you can negotiate; it will just be more difficult. The best advice is that you should explain all the details of your situation. If you lost your job, had a medical emergency, or suffered a loss of income in any way, tell them. They can crunch the numbers, and if they realize that you won’t be able to pay they may be willing to modify the terms.

In later stages, consider mentioning bankruptcy. We encourage consumers to think of bankruptcy as the last resort for debt, but it can be used to bargain. When the creditor hears that term, it will catch their attention.

Responses to Watch out for

If you are trying to negotiate your terms as a way to leverage against another credit offer, your conversation will be pretty straightforward. This is very similar to calling a cable company and asking for a lower monthly payment or additional channels because the competitor is offering a great deal. There aren’t any negative consequences that can come from this sort of conversation.

But when you are calling your creditor out of desperation due to financial trouble, there are some consequences that you may not expect. The main one is that they may freeze you card, which means you won’t be able to access it.

The Process

To begin the negotiation process, you will simply call your creditor and ask to speak to the hardship department or customer relations. Tell them why you’re calling and explain, in detail, the specifics of your situation. This may not be an easy or pleasant process. If you feel that you are not getting the help you need, try calling at different times of the day or ask to speak to a manager. Also, keep in mind that if you are negotiating due to financial hardship, the company may not be willing to modify your terms until after some time has passed, because they are hoping that your situation will improve and you will be able to pay. Remember, their goal is to maximize profit.

There are two main types of arrangements that can be made when you attempt to negotiate credit terms by yourself. These are settlement and a workaround or hardship program. We will cover both and highlight additional concerns with each option.

DIY Credit Card Settlement

It is possible to arrange a lump-sum settlement with your creditor. In this case, you and the creditor would negotiate a reduced total for your debt, and you would pay this in cash. This could be done in one payment or multiple payments that are divided up over the course of several months or a year. There are several negative consequences stemming from this method, but in many cases it is safer than using a debt settlement agency. This is because debt settlement agencies charge additional fees and often ask consumers to take measures, such as avoiding contact with their creditors, that could damage the credit score further.

There are two main drawbacks to this method—tax implications and effects on your credit score.

Like with any type of debt settlement, amounts forgiven over $600 will be treated as taxable income. So even if you get a “great deal” and are able to settle a $10,000 debt for $5,000, you will still pay taxes on the additional $5,000.

As far as your credit score is concerned, a settlement often impacts the credit score as seriously as bankruptcy—and that can be a big setback. It’s important to discuss this with your creditor before moving forward. Ask them, specifically, how this arrangement will be reported to the credit bureaus. Strongly consider one of the alternative options below which have much less negative impact.

Workaround or Hardship Program

We have talked in-depth about credit card hardship programs already, and they are important resources in the negotiation process. These are also sometimes referred to as workaround programs, and they can help consumers stay afloat during tough times. These programs are in place to help creditors ensure that their borrowers will be able to make their payments and not end up in collections or filing for bankruptcy. Again, while these measures benefit the consumer, they are designed to protect creditor profits.

These types of programs can take on various forms. Commonly, consumers are offered reduced interest rates and waived fees but only on a temporary basis, say six months. There are also some creditors who, in special cases, will offer forbearance, which allows the borrower to go without making payments for a pre-determined period of time. This type of arrangement is arguably the most generous of any hardship program.

Luckily, there are not usually any tax implications in these arrangements. Reduces interest rates and waived fees are not treated as taxable income. There are, however, two other drawbacks in regards to hardship programs.

  • In this case, the effect on your credit score can go either way. It really depends on how the creditor reports the arrangement. Your preference would be to have the account “closed by borrower” which is preferable to “closed by creditor.” In these arrangements, your line of credit will be cut when you begin the program.
  • Another drawback here is that while a hardship program is beneficial, it is not comprehensive. For instance, if you have multiple credit cards at the same time and suddenly run into financial trouble, you will likely experience varying degrees of success with hardship programs. Some companies will offer you helpful concessions and arrangements; others won’t. A better approach in this case might be to avoid negotiating on your own and instead use a nonprofit agency that has years of experience with working with creditors. Their established relationship can get you the help you need.

An Alternative to DIY Negotiation

These negotiation strategies can be helpful, and consumers need to be aware of them. But in many cases, these just aren’t enough. Debt settlement is dangerous and its consequences stick around for a long time. And hardship programs, while offering great benefits, often aren’t helpful enough for consumers in deep debt with multiple creditors. Luckily, there is a better way than negotiation. A nonprofit credit counseling agency can help you secure better terms for your debts.

Clearpoint has over 40 years of experience in dealing directly with creditors and arranging payments plans for consumers who are struggling. Because of these established relationships, creditors trust us. They know that when a consumer enrolls in our debt management program, they are serious about paying down the debt. As a result, these creditors often offer generous interest rates and waived fees, the types of special modifications that consumers often can’t get when negotiating on their own.

If you are struggling with debt and negotiation just isn’t enough, talk to us to see if a DMP is right for you. It all starts with a free credit counseling session and budget review, so get started today.

Thomas Bright is a longstanding Clearpoint blogger and student loan repayment aficionado who hopes that his writing can simplify complex subjects. When he’s not writing, you’ll find him hiking, running or reading philosophy. You can follow him on Twitter.

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6 responses to “How to Negotiate Credit Card Interest Rates and Terms”

  • Donna Fagan

    I’m now on disability and my husband is losing his job July 3, 2016 should I consider asking my credit card company for an agreeable pay off amount before my account gets in bad standing? I can’t pay monthly payments now we need lights food and water

    • Thomas Bright

      Donna,

      You should definitely communicate the details of this hardship to them immediately. They may not agree to that type of settlement arrangement, but hopefully they can make some concessions while your husband looks for a new job. Sorry to hear about this difficulty, and please don’t hesitate to contact Clearpoint if you’d like additional help.

  • Kabiru

    I have a lawyer that has been theitaenrng to garnish my wages for a debt that my ex wife signed for. I was deployed to the desert when my ex agreed to have the roof redone. I never signed any paperwork or anything. In fact I didn’t even know about the work until the day they showed up to the house and started ripping the roof off. During that time, we were getting divorced and she filed bankruptcy to which the roof was included. Now, over four years later, they are telling me that I am now accountable for the debt. I never agreed to a anything on this! Am I now responsible for this? Thanks

    • Thomas Bright

      That is a great question, but a legal one. I would recommend getting a legal opinion on the matter. Best of luck!

  • RICK MAIDA

    I have a company called “MAIN STRATEGY” who lowered my interest on 4 of my credit cards but I can’t seem to find them on the internet and I’m worried that I may be a company that doesn’t may not be on the up and up. Since you have the same type of business I’m dealing with, I would welcome your views on what my next my next move should be. Your expertise is welcome!!!

    Very Respectfully,

    RICK MAIDA
    USN, rtetired

    • Thomas Bright

      Hi Rick,
      I found their website, but not much more information. You could try reaching out to the BBB to learn more. You could also talk to one of our counselors who might have more information.

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