4 Top Tips On How To Negotiate Your Credit Card Debts

Riana, a kindergarten teacher in Jakarta, lives like a supermodel. She wears the latest Zara collection, carries a shiny iPad 3, and treats herself to a cup of Starbucks every day. Is she rich? No, she has three credit cards and she’s been missing payments for the past three months. Her creditors have been calling and she may have to kiss those plastic cards goodbye once her credit card status is assessed when Bank Indonesia’s stricter rules take effect on January 1, 2013.

Riana makes Rp 8 million per month, but her outstanding balance has reached Rp 20 million (a sign that your credit card debt is in trouble is when it exceeds 30% of your monthly salary). On top of that, she has other monthly bills to pay like kost, meals, and transportation. Desperate, she sought the help of her mother.

Mother and daughter had a talk about Riana’s consumptive behavior and she had been told to settle all her bills first before making any purchases. Her Mom was willing to help her with some of the bills. Riana felt relieved in receiving a second chance but doesn’t know how to begin the process.

LiveOlive has put together some tips that can help Riana begin her journey towards credit card debt freedom:

1. Transfer your credit card balance to the card with the lowest interest rate. Banks vie for new customers and usually attract them through better rates. Some banks offer 0% – 2% for an introductory period of three months or more, so make sure to ask about the details (including the amount of the transfer fee). If Riana can transfer her other credit card debts to the one with the lowest rate, she’ll at least minimize her fees. Check out LiveOlive’s Credit Card Calculator to find out how much you’re really paying if you maintain a minimum.

2. Ask discount for a lump-sum payment. If you’ve been missing monthly payments for the past 3 months, chances are you’ve received several calls from your bank asking when you can pay. This is a perfect time to negotiate for a discount. Credit card companies will do whatever they can against a total loss of credit, which is why some companies have waived penalties, accrued interests, or provide a discount as high as 50%.

3. Negotiate for debt rescheduling or debt restructuring. Credit card issuers can provide Riana a debt relief through a delay and a reduction in debt-service obligations. In times of leniency, Riana can even negotiate as to how much she can pay in a given month while interest fees and penalties are waived. Usually, a down payment is required once an agreement is reached with the bank. During the period she is paying off her debt, Riana’s credit card will no longer be active.

4. Sign up for collateral-free loans with preferable rate. Riana often receives calls from the telemarketer division of her credit card issuers, offering to “make use” of her remaining credit limit as a cash loan with a flat rate over certain periods, usually between 3-6 months. Riana can compare this option with the balance transfer option and choose the one with lower interest rate. For example if Riana has a credit limit of Rp 10 million in credit card A (with 3.25% interest rate) and an outstanding balance of Rp 3 million, that means she can apply for a maximum loan of Rp 7 million which she can pay off within 3-6 months. Some banks even offer interest rate under 1%.

Eventually, Riana was able to pay off all her credit card debts while the banks welcomed the opportunity to assist her. “I’m glad I talked to them and they helped me,” said Riana, who now makes her coffee at home, maintains one credit card and never makes a purchase without having the money set aside for it.

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