Published: Sunday, July 5, 2009
Credit card companies cut debtors some slack
NEW YORK -- They're the punishing conditions that come with a credit card: interest rates, late fees, monthly minimums. As much as you grumble, there's little you can do.
Enter the never-ending recession, and a shift in the rules.
With delinquencies and charge-offs on the rise, credit card companies are quietly negotiating terms with people in need of relief. The hope is to recover whatever money they can, rather than letting the debt go entirely uncollected.
"The thinking used to be that you needed to be late with a few payments for a modification," said Bill Hardekopf, CEO of LowCards.com. "But the mentality of issuers has changed dramatically. They want to do everything they can to collect this money."
This year, Bank of America expects to issue 1.2 million credit card modifications, up 20 percent from 2008. Chase says it recently expanded eligibility for its repayment program to those in earlier stages of delinquency.
That's not to say just anyone can rewrite the terms of their card agreements; adjustments are still reserved for those in true financial distress. But if you're having trouble paying the bills, it could be worth picking up the phone to call your credit card company to request more manageable terms.
The candidates
Credit card companies are tightlipped about who qualifies for adjustments, but experts say lenders are easing up on eligibility.
"If you demonstrate that you only have so much left over after covering your expenses, that gives you some ammunition to present a case," said Ben Woolsey, director of consumer research at CreditCards.com.
Generally, you want to show that you can't keep up with payments for much longer.
Among the factors a lender will consider are your income, your payment history, the size of your balance and any other debts and assets. A recent job loss or other financial emergency could be another reason for requesting leniency.
You don't necessarily have to be behind on your bills, either. Bank of America says people don't have to be late on a payment to qualify for a modification.
Keep in mind that your credit card company already knows a lot about your financial picture, including your spending habits, credit report and income. So you'll probably strike out if you're requesting adjustments just to save a few bucks, Woolsey said.
The options
Among the most common ways a credit card company could ease your debt are forbearance, lower interest rates and debt management plans.
Forbearance is when a lender gives a temporary reprieve on payments. Late fees are generally waived for the period, meaning you won't get a delinquency mark on your credit report. Interest charges typically continue racking up.
The time-out could help you get back on your feet, but don't expect it to last more than a couple months, said John Ulzheimer, president of consumer education for Credit.com.
Forbearance on credit cards typically isn't reported to credit bureaus, although forbearance on student loans usually is, Ulzheimer said.
Another pain-free way to get some relief is negotiating a lower interest rate. Or you might simply ask that a recent hike not be enacted.
A more serious option your credit card company could offer is entering into a debt management plan, which entails working with a credit counseling service to repay your debt. This might be proposed if other adjustments won't remedy the problem.
As part of the plan, late fees are usually waived and interest rates lowered. You'll still pay the entirety of your debt, although likely in smaller amounts over a longer time.
The nonprofit credit counseling agency that administers the plan will charge a fee of around $20 to $50 a month. It may be waived if you can't afford it.
One of the drawbacks of entering a debt management plan is the likely closure of your credit card account.
Depending on the size of your debt, the repayment plan could also span several years. And it will show up on your credit report for the duration of the plan. It disappears from your credit report once you're done paying.
"The benefit is that you exit (the plan) with pretty good credit," Ulzheimer said.
Whatever adjusted terms you negotiate with your lender, ask how the modification will be reported, if at all. Wait several weeks and check your credit report to ensure there weren't any mistakes.
The risks
There are potential repercussions that come with asking for a modification, so think it through. The strategy could end up boomeranging.
"Anytime you pick up the phone and call your issuer right now, you run the risk of them doing something adverse to your situation," Ulzheimer said.
Flagging that you're a risky customer might result in a lower credit limit, or even the closure of your account, Ulzheimer said.
Card companies are going to hold you to the terms of your agreement if they think you can pay. This is especially true because new laws will require them to follow stricter rules on raising rates come February.
That doesn't mean you should be afraid to pick up the phone if you really do need an adjustment. After all, a clampdown on your credit card terms isn't as bad as a delinquency or bankruptcy.
Enter the never-ending recession, and a shift in the rules.
With delinquencies and charge-offs on the rise, credit card companies are quietly negotiating terms with people in need of relief. The hope is to recover whatever money they can, rather than letting the debt go entirely uncollected.
"The thinking used to be that you needed to be late with a few payments for a modification," said Bill Hardekopf, CEO of LowCards.com. "But the mentality of issuers has changed dramatically. They want to do everything they can to collect this money."
This year, Bank of America expects to issue 1.2 million credit card modifications, up 20 percent from 2008. Chase says it recently expanded eligibility for its repayment program to those in earlier stages of delinquency.
That's not to say just anyone can rewrite the terms of their card agreements; adjustments are still reserved for those in true financial distress. But if you're having trouble paying the bills, it could be worth picking up the phone to call your credit card company to request more manageable terms.
The candidates
Credit card companies are tightlipped about who qualifies for adjustments, but experts say lenders are easing up on eligibility.
"If you demonstrate that you only have so much left over after covering your expenses, that gives you some ammunition to present a case," said Ben Woolsey, director of consumer research at CreditCards.com.
Generally, you want to show that you can't keep up with payments for much longer.
Among the factors a lender will consider are your income, your payment history, the size of your balance and any other debts and assets. A recent job loss or other financial emergency could be another reason for requesting leniency.
You don't necessarily have to be behind on your bills, either. Bank of America says people don't have to be late on a payment to qualify for a modification.
Keep in mind that your credit card company already knows a lot about your financial picture, including your spending habits, credit report and income. So you'll probably strike out if you're requesting adjustments just to save a few bucks, Woolsey said.
The options
Among the most common ways a credit card company could ease your debt are forbearance, lower interest rates and debt management plans.
Forbearance is when a lender gives a temporary reprieve on payments. Late fees are generally waived for the period, meaning you won't get a delinquency mark on your credit report. Interest charges typically continue racking up.
The time-out could help you get back on your feet, but don't expect it to last more than a couple months, said John Ulzheimer, president of consumer education for Credit.com.
Forbearance on credit cards typically isn't reported to credit bureaus, although forbearance on student loans usually is, Ulzheimer said.
Another pain-free way to get some relief is negotiating a lower interest rate. Or you might simply ask that a recent hike not be enacted.
A more serious option your credit card company could offer is entering into a debt management plan, which entails working with a credit counseling service to repay your debt. This might be proposed if other adjustments won't remedy the problem.
As part of the plan, late fees are usually waived and interest rates lowered. You'll still pay the entirety of your debt, although likely in smaller amounts over a longer time.
The nonprofit credit counseling agency that administers the plan will charge a fee of around $20 to $50 a month. It may be waived if you can't afford it.
One of the drawbacks of entering a debt management plan is the likely closure of your credit card account.
Depending on the size of your debt, the repayment plan could also span several years. And it will show up on your credit report for the duration of the plan. It disappears from your credit report once you're done paying.
"The benefit is that you exit (the plan) with pretty good credit," Ulzheimer said.
Whatever adjusted terms you negotiate with your lender, ask how the modification will be reported, if at all. Wait several weeks and check your credit report to ensure there weren't any mistakes.
The risks
There are potential repercussions that come with asking for a modification, so think it through. The strategy could end up boomeranging.
"Anytime you pick up the phone and call your issuer right now, you run the risk of them doing something adverse to your situation," Ulzheimer said.
Flagging that you're a risky customer might result in a lower credit limit, or even the closure of your account, Ulzheimer said.
Card companies are going to hold you to the terms of your agreement if they think you can pay. This is especially true because new laws will require them to follow stricter rules on raising rates come February.
That doesn't mean you should be afraid to pick up the phone if you really do need an adjustment. After all, a clampdown on your credit card terms isn't as bad as a delinquency or bankruptcy.
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