Will your credit card company forgive 70% of what you owe?

By Peter Cohan
Published: January 3, 2009

It's beginning to look like people who borrow money on their credit cards are in a strong negotiating position with the credit card issuers. I find this really surprising; however, people have borrowed so much -- $2.4 trillion in installment debt -- that they have the credit card companies in a strong position when it comes to repaying -- or not.

And those credit card companies expect to get stiffed by 44% more over the next five years than they did in the past five. For example, between 2003 and 2008, credit card companies wrote off $275 billion in credit card receivables but in the next five years, they expect not to collect $395 billion.

And just as we see with the government forking over $8 trillion of taxpayer money to financial institutions, the ones that took on too much risk are the ones getting the special deal. This means that if you are delinquent for 90 days or longer; your income is in the right range; you have a broad network of banking relationships; and your credit record suggests missing a payment is an exception rather than the rule then you can get a deal.

What kind of deal will the credit card issuers give you? Credit card issuers are offering to forgive 20% to 70% of credit card debt. Such forgiveness is not free; however. If you take a deal, your credit score could be lowered for up to seven years making it far more difficult and expensive to obtain new loans. If he or she takes this debt forgiveness deal, the average consumer's score will fall 70 to 130 points, on a scale where the strongest borrowers register 700.

So it looks like if you're in trouble with your credit card company, it's time to hit them up for a break in what you owe. You won't be alone if you do.