Credit Card Debt? Make the Bank an Offer

According to an April 2009 Nilson report, there was over $972 billion in credit card debt outstanding at the end of 2008. That's almost a trillion dollars. The same report also says that in the past year, 15 percent of American adults have been late making a credit card payment and 8 percent have missed a payment entirely. Past-due rates are now the highest they have been since 1991, when the figure first began being tracked. As you can imagine, credit card companies are following these delinquency rates very, very closely. One reason is that regulations require the credit card company to write off the debt after it has been delinquent for six months.

Clearly, the credit card companies are motivated to collect at least SOME of the outstanding debt and a recent article in the New York Times details just HOW motivated the companies are. The article profiles a writer from Chicago who owed over $5,000 on his credit card. Unable to pay the full amount, the writer told the account representative who had called to check up on him that he would pay right away if the company would accept half the amount owed. To the writer's surprise, the account representative accepted the offer.

The article reports that the practice of accepting less than full payment has been going on for about 9 months and is now fairly widespread among credit card companies. However, only a few banks are willing to confirm that they offer such an option. Those banks include American Express and Bank of America.

The writer in the NY Times article may be an extreme example because he was self-employed and rented his home. (That meant that the credit card company couldn't garner his wages or put a lien on his house.) But it does highlight the fact that people who owe a lot on their credit cards and are struggling to pay back the debt down should make an offer to their credit card company -- perhaps it involves reducing the amount outstanding or maybe there is a payment plan that could work for both sides.

If you do end up settling with the card company for less than the amount owed, it might feel like a victory, but it is important to note that there will still be a severe and negative impact on your credit score so this option is certainly not without its flaws.