How to Reduce Credit Card Debt & Negotiate with Creditors
Credit card debt is an overwhelming burden for many American consumers. The high interest rates charged and fees assessed by credit card companies add to the problem. Overburdened creditors need to evaluate their total debt, then create a plan to eliminate excess financial weight.
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Instructions
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Add up all of your debt. Then add up the value of your assets: house, cars, retirement accounts and investments. Calculate your total net worth by subtracting the total of your debts from the total of your assets. This may be sobering. It is the first step and will help eliminate any denial.
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Call all of your creditors and simply ask for a lower interest rate. If you have a large amount of debt but pay the accounts on time, your credit may not be too bad. Lenders might be willing to lower your rate to retain your business.
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Liquidate your accounts if you are in serious financial trouble. While this may drastically alter your retirement plans, it will quickly reduce your debts, perhaps giving you a clean slate, and put you back on the path to financial health. (Remember that cashing out on retirement plans, such as 401(k)s and IRAs, will trigger serious tax and early-withdrawal penalties if you are under 59 and 1/2.)
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Settle your debts. This means agreeing to pay less than is currently owed. To do this, call your creditor and speak with an account-servicing representative. You may need to fax income documents proving your inability to pay as scheduled. You also may need to make a one-time, lump-sum payment as a good faith measure before a creditor will agree to a settlement. Settling your debt may affect your credit as negatively as bankruptcy, but it will considerably reduce the amount you owe.
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Reduce most of your discretionary spending, especially all luxuries. Reducing these expenses will free up extra disposable income that can be used to pay lump sums against your highest-interest debts.
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Ask creditors for hardship plans if you still are struggling with bills. These are proprietary programs that help consumers get back on their feet. Understand that most hardship plans are short-term (often six months) solutions designed to give you a brief reprieve.
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Tips & Warnings
If possible, work directly with creditors or credit-counseling agents. To cause the least damage to your credit report and savings plans, you'll want to pay all of your debts with your current income.
