Give me a better rate and lower my principal NOW

September 18, 2009 11:26 AM

How to negotiate with a credit card company?

Hi, I had some excellent response to a previous question and this is a follow up from that.

I got the recommend book in that thread from Nolo, and I have read most parts of it by now: Solve Your Money Troubles: Debt, Credit & Bankruptcy

Short recap, I recently divorced, ended up with a lot of the credit card dept. I am making minimum payments (barely) and I am not behind, but I am not making any progress on the actual money owed
.
I cannot get equity out of the mortgage I am upside down in.

Now the book, talks about (briefly) negotiating a lower interest rate, lower the principal and such with your credit card companies.

The problem is I am not very good at negotiations, and I have never attempted it before. How does the conversation go?
What are some of the points to hammer on while talking to the credit card company? What is the credit card companies benefit from making concessions to me? Is there a specific department to ask for?

Has anyone in the hive mind done this procedure successfully?

Any advice, would be great.

posted by digividal to work & money (9 comments total)

"Negotiation" is kind of a glorified term for what happens, in my experience. Granted, I have good credit, and this is the kind of thing that is easier the better your credit score is; but you say you've been making the payments, which means you're probably okay.

What happened when I tried to negotiate my interest rate on my credit card was this.

Me: "Hi, I just noticed my credit card just had its interest rate raised to 17%. I'd like to know if there's any way you could lower that rate any."

The Credit Card Company: (sounds of someone typing on their computer a couple seconds) "How's....12%?"

Me: "That's a lot better. Thanks!"


And that was it.

The credit card's benefit from making concessions to you is that they keep you as a card holder. There are scads of cards out there with lower rates, and if they don't lower your rate, you could just go get another card and transfer the balance onto THEIR card, and your old card company loses you as a customer. In fact, that's exactly what I did when I did have a company that wouldn't lower the rate -- I found another card that had a really low rate, applied for that, and transferred the entire balance of the high-rate card onto that new low-rate card. So they lost me as a customer.

sometimes, if they balk at lowering your rate right away, you could say, "well, I just got this offer in the mail which offered me a 0% introductory rate and then it goes up to only a 10% rate, and I was thinking of switching...." Only, don't make up figures, actually save one of those mailings you get time to time and if it's a better deal than the card you have, just tell them that. That often makes them reconsider and lower your rate. And if they still don't, just sign up for the different card, transfer your balance from the old card onto the new one, and be done with it.
posted by EmpressCallipygos at 11:37 AM on September 18

What empress said. Also, I haven't heard of any of these casual negotiation/chats resulting in reduced principal -- that's something that's usually reserved more for a last-ditch, I'm-about-to-stop-paying-my-bills-and-file-bankruptcy-instead conversation.
posted by somanyamys at 12:05 PM on September 18

It helps in a negotiation to understand where the other side stands. If the credit card company knows that you are under water in your mortage, they know what they can lose if you decide to go bankrupt. I have seen bankruptcies recently that have the debtor paying 100% of the secured loans (with restructuring of the mortgage in one case) and a percentage of unsecured loans over time, as little as 10%. They could lose over 80% of your balance by one court decree and they are keenly aware of that.

You sound like you don't want to declare bankruptcy (great, if you can avoid it) so allow them to work with you, but be your own best advocate, too. You will need to have as much information as possible; the rate history of your account, how long you have been a customer, your credit rating and ESPECIALLY other options you may have. Research other cards that you could possibly transfer a balance to. But be aware that this comes with a larger price tag than it used to.

So, be honest and explain your precarious financial situation. In this case it may help you more than hurt you. IANAL, but work in the field and am in no way an expert, but any bit of information will help in your situation.

Good luck!
posted by readery at 12:18 PM on September 18

Unfortunately, the credit crisis has recently caused a lot of credit card-issuing banks to raise interest rates, and I've heard of several cases were people have called to get them lowered and the company tells them no. I hope you have better luck!

I'd also suggest checking out Dave Ramsey's debt books. I don't agree with everything he says, but he's helped a lot of people. The main crux of his method is the "debt snowball": basically determining a set amount that you're going to contribute to debt each month, paying the minimums on everything except the one with the lowest balance, and once that one is paid off, you take the money you had been paying toward that and crank it out towards the next lowest one, so you pay off the smaller ones first and then have more money to contribute to the larger balances. You get more instant gratification and can pay debts off more quickly, meaning you pay less in interest.
posted by scarykarrey at 1:16 PM on September 18

As far as lowering your principal, I'm not sure I understand why any debtor would want to do that. It's debt that you consciously accrued, and you should be responsible for paying it back. I know that creditors will often offer settlements, but that's once they've already closed a defaulted account.
posted by scarykarrey at 1:39 PM on September 18

The book Solve Your Money Troubles: Debt, Credit & Bankruptcy actually is the source of the mention of lowering the principal.
posted by digividal at 2:27 PM on September 18

Unfortunately, the credit crisis has recently caused a lot of credit card-issuing banks to raise interest rates, and I've heard of several cases were people have called to get them lowered and the company tells them no.

This.
Credit card companies have turned to giving you the "option" of declining the rate increase. Basically, you tell them you don't accept the increase. They, then, cancel your card and you pay-off the remaining balance at your old rate. I don't know if you have to pay it off in a lump payment, or if you're allowed to just keep making payments as before. You just can't put anything else on the card. It's canceled.

I'm not sure how much negotiating the companies will do now that they've adopted this system.
posted by Thorzdad at 2:40 PM on September 18

Does the book give you some sort of reasoning behind why the creditor would be willing to lower your principal amount? It seems like, at least these days when so many people are doing so terribly financially and therefore defaulting on loans or credit accounts, banks are going to try to squeeze as much legitimately-owed cash out of their customers as they can. Like I said, they'll often offer settlements on closed, defaulted accounts so that they can get SOME money from people who obviously can't pay the whole thing, but if you haven't stopped making payments yet, they're not going to have any reason not to force you to pay what you really owe.

And maybe this is a little bit of my own butthurt coming out, but it's distressing to me that it's become so commonplace lately for consumers to run up debts and then expect to not have to pay them off in full. If you had to put something on credit, then maybe you couldn't really "afford" it at the time. And then not wanting to pay the creditor? Well, that's just roundabout stealing, isn't it?
posted by scarykarrey at 2:54 PM on September 18

scarykarrey:

Thank you for your frankness.

Back before the recent divorce, we collectively made a lot more money
than I do as a single income person, this what might have been reasonable
once upon a time, is not reasonable anymore.

Perhaps I should have foreseen a divorce and acted as such, but I did not.
posted by digividal at 3:30 PM on September 18