Recession a good time to negotiate credit card debt

Sat, January 24, 2009

You might think this is the worst time to try to negotiate a better deal with your credit card company, but you're mistaken.

It's true that the nation's credit crunch has resulted in card issuers reducing credit lines, canceling unused accounts and raising interest rates. But you don't have to sit by.

"It's kind of counterintuitive," said Curtis Arnold, founder of card-comparison Web site CardRatings.com and author of "How You Can Profit From Credit Cards."

"In this environment, strangely enough, everything is negotiable. You have more leverage now to get concessions than you've ever had because at the end of the day the last thing they want to do if you've been a good customer is lose your business."

Having regular conversations with your credit card company can be highly profitable. It's especially important if you're in a money jam or loaded with debt.

Those conversations should include asking for lower interest rates, waived fees, higher or restored credit limits and, in dire cases, settling card balances for less than you owe.

Part of your leverage comes from the fact that credit card companies can spend up to $300 in marketing expenses to replace you with another customer, Arnold said.

"I am calling my banks all the time," said Scott Bilker, who said he has dozens of credit cards. Bilker, author of "Talk Your Way Out of Credit Card Debt," said he's had less success lately dealing with card companies, but only marginally so.

"Never get discouraged," he said. "Always keep going."

Don't think it's worth your time and effort to haggle over credit card terms? What if you were able to get fees waived for a $40 annual fee and a $35 late payment, and lower the interest rate on two cards with $5,000 balances from 20 percent to 10 percent?

One-year savings would be nearly $1,100, assuming you were making minimum payments, according to a calculator at Bankrate.com.

Negotiating terms shouldn't be a one-time event, but a routine part of being a smart cardholder. "If you're not proactive, don't count on them doing anything for you," Arnold said. "It's the old adage, 'The squeaky wheel gets the grease.'|"

Card issuers say they try to be flexible.

Bank of America, among the biggest card issuers, said it is willing to negotiate with customers and in 2008 stepped up efforts to waive fees and lower interest rates for distressed cardholders, spokeswoman Betty Riess said. It modified nearly 700,000 credit card loans last year.

"We would evaluate any pricing decision based on the individual customer's performance with us as well as external credit risk factors," she said. "We understand that many of our customers are struggling to meet their financial obligations and our objective is to help customers who are experiencing financial hardship."

No negotiation tactic, lower interest rate or waived fee is a substitute for paying off your existing card balances and not charging more in the future than you can pay off each month. Ultimately, that's the way to get out of credit card debt.

Here are some tips. Most work far better if you've been a good-paying customer and have a high credit score:

Get organized.

Draft a list of all your credit cards and their balances, interest rates, fees and credit limits. You might want to pull your credit reports for free at AnnualCreditReport.com.

Source: http://www.chicagotribune.com/