A strange phenomenon is taking place – credit card companies are willing to really negotiate on how much you repay of your overdue debt. With revolving credit, a close approximation of credit card debt, totaling $939.6 billion in March of which 6.5 percent was at least 30 days past due in the first quarter, banks have little choice but to come to the table and work out a deal. After all, they would rather get back some of the monies owed to them as opposed to letting the entire debt be wiped out due to bankruptcy or extended delinquency. The NY times brought us the story of a Mr. McClelland who worked out a deal with his bank to only pay half of his $5,486 balance. He was paying fitfully on his card, which was canceled for delinquency. In April, HSBC offered him full settlement at 20 percent off. He declined. A few weeks later, it agreed to let him pay half.

Why are banks doing this? As they confront unprecedented numbers of troubled customers and the recently approved credit card reform bill, credit card companies and banks are increasingly doing something they have historically scorned: settling delinquent accounts for substantially less than the amount owed. In the current economic climate with unemployment approaching 10%, some banks have been known to forgive up to 70 percent of a consumer's debt. Why? Not for your sake, for theirs. Banks fear that the economic downturn is only going to get worse in the coming months, so they're taking what they can while they can. After a balance has been delinquent for six months, regulations require the card company to reduce the value of the debt on its books to zero. If a borrower has not paid by this point, chances are he never will. Only a few creditors are willing to confirm the practice. Bank of America and American Express say they decide on a case-by-case basis whether to accept less than the full balance. Other card companies refuse to discuss the subject, but their trade group, the American Bankers Association, acknowledges that settlements are becoming more common.

So what do you do? If you are in true financial peril, the brink of bankruptcy, you might want to approach your bank or credit card company (or the debt collector assigned to the account) and ask to pay off less than the full amount. You will need to show evidence of your hardship and then justify why you cannot pay your debt. There is then a good chance that they company will settle for much less than what is owed, but they will want payment straight away. If you want professional help you can hire a debt settlement firm, which for a fee will bargain with the creditor on your behalf. This is useful in situations where the debt is significant enough to justify the professional fees.

While this may seem like a sweet deal for many, remember that even if you get debt relief through negotiating your credit card repayment, you will still take a big hit to your FICO credit score. Also don’t expect credit card companies and issuers to heavily publicize this as they do not want to promote the idea that settlements have become merely a matter of asking nicely. Still for those facing serious credit card debt issues, escape may just be a phone call away.

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