Expert Credit Card Debt Reduction Tips

By Susan Weber

Gerri Detweiler, Consumer Advocate and Credit Educator

Knowing how to reduce credit card debt can save you from massive debt problems including collection actions and bankruptcy. In this 2009 interview, Gerri Detweiler, Consumer Credit Expert, provided no-nonsense answers to our questions about credit card debt reduction in the current credit environment.

Should consumers try to negotiate better interest rates with their creditors?

The credit environment now is unlike anything I've seen in the past two decades. Before, I always told consumers that if they wanted a better deal, just ask. Now my advice is different. If you call your credit card company, be prepared for the results to go either way. In other words, you may get a better deal - or the issuer may take it as an opportunity to review your account and increase your interest rate, reduce your credit limit or both.

If you have strong credit scores, you may still be in a good position to negotiate a better deal, though the days of sky high credit limits and rock bottom rates appear to be over for most of us, at least for now. Don't assume that you have strong credit just because you pay your bills on time. Make sure you arm yourself with your credit reports and scores before you start talking with your creditors. They may review at least some credit information while you are on hold. You want to see what they may see.

What can consumers expect when it comes to settling debt?

While writing my most recent book, Reduce Debt, Reduce Stress, I interviewed a number of people who settled large amounts of credit card debt. They wanted to avoid bankruptcy, but owed too much to use a credit counseling agency.

A few settled on their own, typically because they had just a few creditors, smaller amounts of debt, or very thick skin! The majority of them hired a debt settlement firm because they were feeling pressured by all the phone calls and didn't feel confident going it alone. The good news is that an increasing number of credit card companies are reaching out to consumers with settlement offers before accounts go to collections. That means there is an opportunity to work out a good deal.

Your financial hardship dictates how much you can settle for. The goal is to pay as much as you can afford so that your balances are taken care of in 24 months or less. If it takes longer, your risk of being sued goes up. One consumer I interviewed settled over $100,000 in credit card debt for about 20 percent of what she owed; but, it's more realistic for consumers with multiple balances to expect to come out of a successful settlement for somewhere around half of what they owe. Some will accept less, some will insist on more. Keep in mind not all consumers are successful negotiating down their debt, and end up filing for bankruptcy.

Any tips to share with our readers about debt settlement?

Debt negotiation is not an easy way out of debt. It's really an alternative to bankruptcy, though the damage to your credit is similar. When comparing this option to bankruptcy keep in mind that you won't owe taxes on debts wiped out in bankruptcy, but you could owe taxes on debts forgiven directly by your creditors. A tax advisor can help you run the calculation. Never start settling debt without first talking with a credit counseling agency and a bankruptcy attorney.

Also remember that you have to come up with money to settle your debts. If you don't have income coming in, or some assets you can tap (hands off your retirement funds!) then bankruptcy may be a better option. That also means you want to avoid companies that charge high up front fees. If you give the settlement company all your available cash in the beginning, where are you going to get the money to settle when good offers come in?

What if consumers just can't pay their credit card bill?

Let your credit card company know what's going on, and why. Then tell them you'll be in touch with them in a month to give them an update. Your account will likely be closed, your interest rate may go up, and you may find your phone ringing off the hook, but if you can't pay, you can't pay. Focus your energy on getting back to work.

I also recommend you see a bankruptcy attorney at that point. Even if you hope to avoid filing, it's important to know what your options are if you don't get back on your feet as soon as you hope. The consultation will be free and confidential, and will help you put to rest some of your fears about what they might do if you don't pay.

Any special tips for new credit cardholders?

Most people handle credit cards just fine. But for others, they are like a drug, and are highly addictive. If you find yourself carrying a balance, put the card away until you pay it off. Then look at how much that balance costs you and decide if it's really worth it.

About Gerri Detweiler

Gerri Detweiler has been offering reliable, independent credit advice for over twenty years. She has been interviewed for thousands of news stories and has testified before Congress. She is the co-author of five books, and her newest title is an e-book, Reduce Debt, Reduce Stress: Real Life Solutions for Solving Your Credit Crisis. She serves as Personal Finance Advisor for Credit.com, a personal finance education website.