Is it Helpful to Try to Negotiate With Credit Card Companies Before Filing Chapter 13 Bankruptcy?
The idea of using Chapter 13 bankruptcy to get rid of credit card debt may be tempting, but it comes with a stiff price -- filing Chapter 13 bankruptcy means a long process of rebuilding your credit while proving to creditors that you are credit worthy. If credit card debt has you contemplating bankruptcy, you may find it helpful to negotiate with credit card companies before taking this step.
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Using Credit Cards
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Before attempting to negotiate with credit card companies, it's important to know how much income you have to spend and how you're using your credit cards.
Consider your income less the cost of essential living expenses, such as housing costs associated with rent or a mortgage, utilities, food and transportation expenses. What's left is what you have to pay toward your debts. If there's nothing left for credit card payments, or, if you're using your credit cards to pay essential living expenses, bankruptcy may be your only option.
Consider other factors, as well. If you're unemployed or facing medical issues that may affect your income, and thus your ability to pay your debt, negotiation may not be an option.
However, if your credit card debt is due to reckless spending or paying down old debt, and you have some expendable income, you may be in a position to negotiate with your creditors.
Stop Using Credit
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Negotiating with credit card companies to reduce your debt is only an option if you can stop using your credit cards until you've made strides to pay off your existing debt. In fact, negotiation may entail a freeze on the account until some of the debt is paid, or the account is closed, so before you contact credit card companies about negotiation, be willing to stop using the cards.
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Number of Cards
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If you have some expendable income and can stop using credit cards, you're ready to negotiate -- that is, if your number of cards is manageable. Bankrate's Steve Bucci writes that the key to negotiating with credit card companies is often the number of cards you have.
"If you have only a few creditors, you are more likely to be able to come to terms," Bucci writes. "You might successfully negotiate with one or two lenders, but once you get beyond one or two, the odds are against you being successful in the long run."
Negotiation
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If you have only a few cards and are willing to take the steps necessary to negotiate, be prepared before you make the call to the credit card company.
Gather your statements from the credit card company, and any other information that may be useful in pleading your case, such as information about medical bills, unemployment or any other major life event that may have affected your ability to pay your credit card bills. Ask about hardship programs that can lower your payment or your interest charges.
Many of the hardship programs offered by credit card companies are time limited, and can be affected by any attempts to get new credit cards, so make sure you understand the terms before agreeing to a hardship program.
Credit Counseling
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If you have numerous credit cards, or have had no luck negotiating with credit card companies on your own, don't file for bankruptcy just yet -- working with a credit counseling agency may be an option to help you get rid of debt without the dreaded bankruptcy proceedings.
A credit counselor can help you to analyze your debt, and can recommend a budget to help you pay your bills and living expenses. Credit counselors can also negotiate with your creditors on your behalf for reductions in interest or minimum payments.
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