How to negotiate credit card debt settlement yourself in Australia

WeMoney

Having credit card debt can feel overwhelming, especially if you’re struggling to make regular payments. If you’re stuck with high-interest repayments and can’t see a way out, consider starting negotiations with your credit issuer to pay off your debts. 

In this article, we’ll cover the process of debt management and negotiations to help you improve your financial situation.

Let’s get to the following commonly asked questions: 

  • Can I negotiate my own debt settlement?
  • Do banks negotiate on credit card debt?
  • Can you settle credit card debt without hurting your credit?
  • What percentage should I offer to settle a debt?
  • How to negotiate with debt collectors for a lower settlement in Australia?

Q1. Can I negotiate my own debt settlement?

If you’re in debt with credit card companies or bill companies and you cannot afford to pay your minimum payments, you can enter debt settlement negotiations yourself. This can be done on a temporary or permanent basis depending on your financial situation.

Only certain creditors will accept a debt settlement. For example, a secured personal loan such as a home loan provided by mortgage lenders will not accept negotiations to pay off debt and will instead seize collateral (i.e, the house or the car). If you don’t pay, they could also take legal action against you.  However, unsecured loan issuers such as credit card companies will be more willing to enter into negotiations. 

Note: Be warned that if you don’t negotiate your credit card debt, your creditor could sue you for nonpayment or sell your debt to debt settlement companies. It will also hurt your credit score if you don’t start negotiating payment strategies. 

Q2. Do banks negotiate on credit card debt?

Yes, nearly all banks will agree to negotiate the debt down if you’re in financial hardship, although they are not legally required to lower your credit. 

To start negotiations, contact your credit card issuers as well as financial counsellors and be honest about your personal financial situation. You’ll then likely be asked to pay a lump sum of around 25 percent of your outstanding balance in exchange for debt relief.

Important: Be aware that the bank will likely come back with a counter offer and negotiating credit card debt can be a long and drawn-out process. If you need help, contact debt negotiators to help you out of your financial difficulties.

Q3. Can you settle credit card debt without hurting your credit?

Settling your debt is the first step needed to fix your credit. Negotiation with your credit issuer to pay back a smaller portion of your outstanding debt ahead of time (before credit card debt gets out of hand) will have less of an effect on your credit score, especially if you make lump sum settlements.

Another way to pay off your debt and avoid tanking your credit scoring is to take out a debt consolidation loan, allowing you to settle credit card debt without entering into negotiations. If you’re unsure whether a loan is right, we recommend talking to a qualified financial advisor for more guidance. 

Q4. What percentage should I offer to settle a debt?

The percentage you should offer to pay to settle your debt depends entirely on what you can afford and the card debt you carry with each card issuer. The average debt settlement is between 30 and 50 percent of the original credit card balance, paid in a lump sum rather than monthly payments.

Note: If you don’t settle your debts with credit card companies, you’ll likely be dealing with debt collectors until the debt is paid. It’s therefore essential to enter credit card debt settlements early to avoid debt collection agencies.

Q5. How to negotiate with debt collectors for a lower settlement in Australia?

If you fall behind on your credit card bill and are struggling with paying your bills, you could face a debt collector. If this happens, don’t panic. Settling the debt with careful financial planning will cease contact with debt collection agencies. 

If you want to enter a credit card debt negotiation with a collector, here’s how. 

Work out what you can pay

It’s essential to be transparent about your personal information and be honest with yourself and the collector about how much you can pay. If you’re dealing with debt, consider applying for a home equity loan, a mortgage refinances, or a personal loan to take control of your finances. 

Propose a payment plan

Approach the collector with a proposed debt agreement highlighting your payment plans. They will likely ask you for your financial details and negotiate a suitable monthly repayment amount. A debt collector could agree to allow you to pay back smaller amounts over a long period, close the debt by paying a lump sum, or waive the debt entirely depending on your financial situation. 

Dispute the debt 

If you think the amount owed is incorrect, you can dispute it with the debt collector. For example, your debt amount is wrong if: 

  • It’s over six years old and no court judgement has been made against you.
  • If you’ve already settled your debt or paid it back.
  • If the debt isn’t yours.

Summing up

If you’re struggling with credit card payments and are facing financial hardship, don’t panic. There are ways to negotiate debt without having to rely on payday loans. Contact your credit card issuer to start the negotiation process or alternatively converse with debt collectors to take the steps necessary to pay off your debts and start the process of credit repair. 

If you liked this article, you’ll also like our article ‘how to manage credit card debt.’ If you want more advice, read our regularly updated blog

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Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs or financial situation.

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