Hardbacon logo

How to negotiate a credit card debt settlement yourself in Canada?

By Arthur Dubois | Published on 03 Aug 2023

a person holding a pen over a paper

    Did you know that Canadians owe more than $90 billion in credit card debt? 

    Clearly, credit card debt has become a common issue faced by many Canadians. If you find yourself drowning in credit card debt, you may be wondering how to negotiate a settlement on your own. This article will guide you through the process and provide valuable insights to help you take control of your financial situation.

    Who can negotiate a credit card debt settlement in Canada?

    For individuals grappling with the burden of debt, understanding who can negotiate their debt settlement becomes vital. Let’s delve into the different parties who can facilitate this process.

    The Individual Debtor

    The first and most direct answer to “Who can negotiate a credit card debt settlement in Canada?” is you. As an individual dealing with debt, you are entitled to negotiate directly with your creditors. This route requires a keen understanding of your financial situation, well-honed negotiation skills, and persistence.

    You’ll need to present a viable repayment plan that illustrates how and when you will repay your debts, potentially with reduced interest or a lower principal amount. However, remember that creditors are not obligated to agree to your proposal. Additionally, your success may depend on your relationship with the creditor and your payment history.

    Licensed Insolvency Trustees

    Another party that can negotiate a debt settlement in Canada is a Licensed Insolvency Trustee (LIT). These are professionals licensed by the Office of the Superintendent of Bankruptcy (OSB). A LIT can help you file a consumer proposal or file for bankruptcy, which is an agreement that allows you to pay back a portion of your debt over a set period (up to five years).

    The LIT will work with you to develop a proposal that outlines the portion of the debt you can repay. They will then negotiate this proposal with your creditors on your behalf. Although it does negatively impact your credit score, this option can often result in lower total debt repayment.

    Credit Counselling Agencies

    In addition to individual debtors and LITs, Credit Counselling Services such as Consolidated Credit Counseling Services of Canada can also negotiate a credit card debt settlement in Canada. Certified credit counsellors from these agencies can analyze your financial situation, help you create a budget, and then approach your creditors to negotiate a repayment plan.

    Their negotiation may include lower interest rates or a longer repayment period. However, it’s crucial to select a reputable agency to avoid further financial pitfalls.

    Preparing for Debt Negotiation

    Before beginning the negotiation process, it’s crucial to thoroughly prepare and assess your financial situation. Taking the time to gather the necessary documentation and set realistic goals will greatly improve your chances of success.

    Dealing with debt can be a daunting task, but with proper preparation, you can navigate the negotiation process with confidence. By following these steps, you will be well-equipped to tackle your debt head-on.

    Assessing Your Financial Situation

    Start by evaluating your overall financial situation. Determine your total debt load, including all credit card balances, interest rates, and any other outstanding debts. This will give you a clear picture of where you stand and what you can realistically negotiate.

    Take a close look at your income and expenses. Calculate your monthly cash flow to understand how much you have available to allocate towards debt repayment. This analysis will help you determine a feasible negotiation strategy.

    Consider seeking professional advice from a financial advisor or credit counsellor. They can provide valuable insights and guidance tailored to your specific circumstances.

    Gathering Necessary Documentation

    Next, gather all relevant documentation related to your debt. This may include credit card statements, payment history, and any correspondence with your credit card company. Having this information readily available will allow you to present a strong case during negotiations.

    Organize your documents in a clear and concise manner. Create a file or folder specifically dedicated to your debt negotiation process. This will help you stay organized and easily access the necessary information when needed.

    It’s also important to review your credit report to ensure accuracy. Any discrepancies or errors should be addressed promptly to prevent any negative impact on your negotiation efforts.

    Setting a Realistic Repayment Goal

    When preparing for debt negotiation, it’s essential to set a realistic repayment goal. Determine how much you can afford to pay and create a budget to accommodate your settlement plan. Having a clear repayment goal in mind will help guide your negotiation strategy and increase the chances of reaching a favourable agreement.

    Consider the timeframe in which you want to achieve debt freedom. Are you looking for a short-term solution or a long-term plan? Assessing your financial goals will allow you to align your negotiation strategy accordingly.

    Remember to be realistic and flexible in your approach. Negotiating with creditors often involves finding a middle ground that is mutually beneficial. It’s important to strike a balance between what you can afford and what the creditor is willing to accept.

    Steps to Negotiate a Credit Card Debt Settlement

    Now that you are well-prepared, it’s time to begin the negotiation process. These steps will guide you through the process of reaching a credit card debt settlement on your own.

    Contacting Your Credit Card Company

    Start by reaching out to your credit card company to discuss your debt settlement options. Contact their customer service department and explain your situation honestly. Share your willingness to find a solution and negotiate a settlement that works for both parties. Remember to stay calm and professional throughout the conversation.

    Presenting Your Case

    During the negotiation process, it’s important to present a clear and compelling case to your credit card company. Explain any extenuating circumstances that may have led to your debt and highlight your efforts to resolve it. Providing valid reasons and demonstrating your commitment to resolving the debt will increase your chances of a favourable outcome.

    Making a Settlement Offer

    Once you have presented your case, it’s time to make a settlement offer to your credit card company. This offer should be based on your realistic repayment goal and what you can afford. Keep in mind that your offer may be subject to negotiation, so be prepared for potential counteroffers.

    Finalizing the Agreement

    If you reach a settlement agreement with your credit card company, ensure that you have all the terms and conditions in writing. Review the agreement thoroughly to ensure it accurately reflects your agreement. Make the necessary arrangements to fulfill your part of the settlement, and follow up to confirm that the debt has been settled as agreed.

    Impact On Your Credit Score

    Negotiating your debt settlement yourself, without filing for bankruptcy or a consumer proposal, can have both positive and negative effects on your credit score. Let’s delve into the potential outcomes:

    Positive Impact

    Successfully negotiating a debt settlement and paying off your debts can demonstrate responsible financial behaviour to creditors. While the settled debts may still be reported on your credit report, they will be marked as “settled” or “paid settled,” which is generally viewed more favourably by lenders than unpaid debts or bankruptcy. Over time, as you continue to manage your finances responsibly, your credit score will gradually improve.

    Negative Impact

    During the negotiation process, it is common for your creditors to report your accounts as delinquent, as you may be making reduced payments or pausing payments altogether while you negotiate. These late or missed payments can have a negative impact on your credit score. Additionally, the settlement itself may be noted on your credit report, signalling to potential lenders that you were unable to fulfill your original debt obligations.

    It is essential to understand that settling debts can remain on your credit report for up to seven years, depending on your location. During this time, the settlement can affect your ability to access new credit or loans, and you may be offered higher interest rates by lenders due to the perceived higher risk associated with your credit history.

    Improving Your Credit Score After a Credit Card Debt Settlement

    After a debt settlement, proactive steps must be taken to improve your credit score. A crucial step in this process is to closely monitor your credit report for any inaccuracies and to track your progress. Many online platforms exist that allow you to monitor your credit score for free. Regularly checking your credit score can help you understand how your financial behavior affects it, enabling you to make more informed decisions about your finances moving forward.

    Simultaneously, utilizing credit cards that can help you rebuild your credit is a viable strategy. Certain credit cards, known as secured credit cards, are specifically designed for individuals with poor or rebuilding credit. They require a refundable deposit which establishes your credit line. As you use the card and make your payments on time, these actions get reported to the credit bureaus, contributing positively to your credit history. It’s important to remember that the goal is not to increase spending, but to demonstrate responsible credit behavior over time. With diligent effort and responsible financial management, your credit score can rebound from the impact of a debt settlement.

    [Offer productType=”CreditCard” api_id=”6209e06d9c5f4c05c0de0111″ id=”171391″]

    Negotiating a Credit Card Debt Settlement in Canada: The Bottom Line

    Negotiating a credit card debt settlement on your own is possible and can be a crucial step toward regaining your financial freedom. By understanding the basics of credit card debt, recognizing the importance of negotiation, and preparing effectively, you can successfully navigate the process. 

    Remember, taking control of your credit card debt is empowering, and with determination and persistence, you can achieve a favourable settlement that puts you on the path to financial stability.

    FAQs About Negotiating a Credit Card Debt Settlement in Canada

    Can I get a credit card after a debt settlement?

    Yes, you can get a credit card after a debt settlement. However, the settlement may temporarily impact your credit score, making it harder to qualify for prime credit cards with favourable terms. Consider applying for secured credit cards, which require a cash deposit as collateral, or credit cards designed for individuals with fair or poor credit. Responsible credit use can help improve your creditworthiness over time.

    Can you settle credit card debt without hurting your credit?

    Settling your credit card debt without hurting your credit score is unlikely. During negotiation, missed or reduced payments may be reported as delinquent. The settlement itself may also signal financial struggles to lenders. However, once settled, it is definitely better than leaving the debt unpaid. Over time, responsible financial behavior can help improve your credit score, mitigating the impact of the settlement.

    How much can I settle my credit card debt for?

    The amount you can settle your credit card debt for depends on various factors, including your financial situation, the creditor’s policies, and the age of the debt. Generally, settlements range from 25% to 70% of the outstanding balance. Negotiate with your creditor, offer a lump sum payment or structured settlement plan, and be prepared for some back-and-forth. Professional debt negotiators can assist, but beware of scams and fees.

    What should I say to my credit card company to settle my debt?

    When contacting your credit card company to settle your debt, be honest and transparent about your financial hardship. Explain your inability to meet the original payment terms and your willingness to resolve the debt. Request a settlement offer, emphasizing your commitment to paying a lump sum or proposing a structured payment plan. Remain courteous and persistent, seeking a mutually beneficial resolution. Confirm any agreements in writing, ensuring clarity on the settlement terms before making any payments.

    Consolidated Credit Canada
    Consolidated Credit Canada
    Ready to take control of your financial future? Explore our comprehensive debt consolidation solutions and start your journey to financial freedom today!

    Arthur Dubois is a personal finance writer at Hardbacon. Since relocating to Canada, he has successfully built his credit score from scratch and begun investing in the stock market. In addition to his work at Hardbacon, Arthur has contributed to Metro newspaper and several other publications