Can I Negotiate a Credit Card Debt Reduction In This Economy?

Reader question: "I have heard about credit card debt reduction in the past, but I was wondering if these types of programs are still available in the current economy? I have about $15,000 in debt that I want to pay down, so that I can be in a better position to buy a home next year. Is there any way to negotiate a reduction with my card issuer?"

There aren't very many formal programs (if any) designed specifically for credit card debt reduction -- at least, not that I know of. Sure, you can negotiate with your card issuer to try to waive certain fees, or maybe even lower the interest rate. But these companies generally don't offer any formalized debt reduction plans, because it goes against their entire business model.

The Reluctance to Negotiate

You have to think about it from the perspective of a credit card company. Their goal is to have their customers carry debt -- and to pay interest on that debt -- for as long as possible. The ideal customer for a card issuer is the one who maintains a credit card balance for his or her entire life. That way, they can continue to make money in the form of interest and fees.

Bearing this in mind, you can understand why they wouldn't want to negotiate or offer credit card debt reduction plans. It reduces their revenue!

The Best Way to Reduce Your Credit Card Balance

The best way to achieve a reduction in your credit card balance is to establish a budget to pay the debt down over time. I have written about that in the past, and you can find an article about paying down your debts here on the blog. If you have more than one card, you should focus your efforts on the one with the highest interest rate first. By putting more money toward this card, you will save the most in the long run and get your finances under control more quickly.

You'll also need to pay more than the minimum balance due each month, because the minimum balance is designed to keep you paying forever. Remember, the credit card companies want you to maintain a balance for as long as possible. This is how they make money through interest rates and fees. So they generally establish a minimum payment that is mathematically designed to keep you paying for life.

If you pay no more than the minimum balance due, you will not be able to make any significant reductions in the balance you have accumulated. That's why it's important to establish a budget that allows you to pay more than the minimum.

Another proven technique for credit card debt reduction is to send a payment every 14 days. As you know, card statements generally come once a month, so the average consumer makes one payment against credit card debt every month. But if you are able to double up your payments -- by sending a payment every two weeks -- you will pay down your balance much more quickly. This is a good technique to use for that card with the highest interest rate (i.e., the one that costs you the most money each year).

With New Credit Card Laws, Debt Reduction Is Less Likely

If you have been watching the news over the last month or so, you've probably heard that there are some new laws going into effect that will regulate the credit card companies. In fact, the first phase of those new laws went into effect just last week. The next major phase will go into effect in February of 2010.

These laws are designed to end a lot of the abuses of the credit card industry, such as jacking up interest rates on responsible customers and charging outrageous fees. As a result, these laws will reduce the revenues made by these companies. So you can bet that they will be less likely to entertain a debt reduction plan than they might have been in the past.

NFCC Offers A New Payment Strategy

While there aren't very many credit card debt reduction programs available these days, there is still plenty you can do to reduce your balances. We've already talked about the best way to reduce your debt, which is simply to establish a budget and pay the balance down. But there are other ways to negotiate with a credit card company as well, and one of them was recently announced by the National Foundation for Credit Counseling (NFCC).

The NFCC is a Nonprofit Organization that offers financial counseling to consumers in the United States. Their headquarters is located in Silver Spring, Maryland, but they have offices all over the country. The NFCC recently announced a program designed to help consumers pay down their credit card balances. Basically, they help you negotiation with your card issuer in order to have certain fees waived, or even to reduce the interest rate on your current balance. In Exchange, the cardholder would make every effort to pay down the remaining balance.

"This represents a significant action on the part of the creditors to take additional steps to help consumers, which is our collective mission," said Susan C. Keating, president and CEO of the NFCC.

This new program is called the "Call to Action" initiative, and you can learn more about it by visiting the NFCC website.

I don't know how willing the credit card companies will be to embrace such a plan, based on everything we've talked about so far. But it would be a disservice if I did not at least mention it to you, because it has a lot to do with credit card debt reduction, how to negotiate with your card company, and other topics discussed in this article. At the very least, it's worth looking into.