When you're in debt, prioritizing which bills to pay down first often comes down to what's tangible: your car or your home. Yet credit cards often carry the highest interest rates of any consumer debt, with the average APR at around 23.79%, making your balances grow even when you're making regular payments.
It’s best to face your credit card debt head-on. If you’re struggling with repayment, instead of heading to bankruptcy court, call your creditors. Depending on your situation, they may be willing to negotiate terms that you can manage.
Negotiating With Your Lenders
Being proactive and contacting your lenders before defaulting on your loans shows your credit card lenders you’re responsible. But even if you’re already behind, they may still be willing to work with you.
Understanding your options is important, so you know what you should ask your lenders to help you with, including:
- Hardship plans: If you're dealing with a job loss, medical emergency, or another life hardship, ask your creditor about temporary relief options, including reduced payments, a pause on payments, or waived fees for a few months while you get back on track.
- Lower interest rates: Request a reduced APR so more of each payment goes toward your actual balance, speeding up how quickly you pay it off.
- Payment arrangements: Ask for a restructured monthly plan with a repayment that fits into your budget better.
- Settlement offers: If you're significantly behind, you can ask to settle for a lump-sum payment that's less than your total balance, with the remainder forgiven. Keep in mind this will show up on your credit report as "settled" rather than "paid in full," which can hurt your score.
DIY Negotiating: The Bad vs. The Good
Pros
- No Cost: You don’t have to hire a company to negotiate for you.
- Steer Clear of Predatory Companies: Debt settlement companies and other organizations often charge steep fees, give questionable advice, or turn out to be outright scams.
Cons
- Uncertainty About What to Request: Without a professional guiding you, you're left figuring out on your own what a creditor might agree to, which can mean asking for too little or too much and getting nowhere.
- Mistakes Can Happen: A missed deadline or misread agreement can lead to extra fees or even legal trouble when you don't have expert guidance.
- A Lot to Manage: Keeping track of calls, paperwork, and terms across multiple creditors can become a lot to handle alone.
Or Choose A Debt Management Plan
If you're looking for professional support, a debt management plan through a nonprofit credit counseling agency can provide it. A certified credit counselor can negotiate on your behalf for a reduced interest rate and consolidated monthly payments that you can afford. While there's typically a small fee involved, often around $40 a month, it can save you significant time, money, and stress in the long run.