Why Credit Card Companies Are Willing to Negotiate

Credit card companies loan money with the expectation that they’ll be repaid on a monthly basis for the principal (the amount you owe) at a specified interest rate plus any miscellaneous fees disclosed in the terms of the agreement. Obviously they are in business to make a profit on their investment.

Photo by Cliph.

So why would they ever agree to negotiate credit card debt, and furthermore submit your account to the credit reporting agencies with a zero balance if the lower negotiated amount is paid? And why should a consumer pay off a large balance when they could just negotiate with their credit card company and pay them a smaller amount?

The reasons really are quite simple. Indebted consumers sometimes are unable to live up to the terms of the credit card agreement due to a variety of financial hardships. If they have stopped making payments for a significant period of time, the credit card company might reasonably believe that the borrower will never make another payment on their account. Given this scenario, the creditor would agree to negotiating credit card debt if they believe that they can recover a significant portion of the money by offering a lower payoff amount as an inducement to the borrower. Recovering some of their money is definitely better than recovering none of their money. It may be the lesser of two evils, but it nevertheless affects the bottom line of the company. When you consider that a credit card company may have millions of accounts on their books, a policy of debt negotiations in certain scenarios can add up to big money, and therefore it can be a prudent business decision on their part.

Why shouldn’t every consumer with a large balance give debt negotiations a try? The reason is that it has serious negative consequences. It may unnecessarily have a negative impact on their credit score, which may result in higher interest rates on their other credit accounts. It could also be the basis for possible denials on further requests for credit, like for a car or a home purchase. So it is not to be taken lightly. Keep in mind, debt negotiation services, also known as debt settlement, are meant only for those whose debt problems outweigh the negative consequences. A debt settlement program is ideal for someone whose debt crisis cannot be handled through a debt management plan (DMP), but is not so overwhelming to warrant filing for bankruptcy, which can have serious long-term negative effects.