Many credit card users suffering from job losses or other effects of the recession can’t even make the minimum payment on their card — or cards — pushing credit delinquencies to all-time highs, according to the Fitch Credit Card Index.
The delinquency index has increased 36 percent in the last six months.
“We are in uncharted territory for credit card losses,” said Michael Dean, a managing director for Fitch Ratings.
For years, legitimate nonprofit credit-counseling agencies have helped people negotiate repayment plans. Creditors have offered concessions, including waiving late and over-the-limit fees and reducing interest rates.
The problem is that a growing number of consumers are so deep in debt and have income so low that traditional creditor concessions aren’t sufficient to help them qualify for the typical repayment plan.
Last year, an estimated 405,000 who were counseled by member agencies with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies were turned down for repayment plans.
In an effort to help many families who want to honor their consumer debt obligations, the NFCC has struck a deal with the nation’s top 10 credit card issuers to roll out two special debt repayment plans.
“We want to help consumers pay back their debts and avoid bankruptcy,” said Susan Keating, president and chief executive of NFCC.
Under the new negotiated debt repayment program, consumers may qualify for a “standard” or “hardship” plan with fixed monthly payments and a goal to be out of debt within 60 months.
Those who qualify for the standard debt repayment plan would pay 2 percent of their outstanding debt each month. If the hardship plan applies, their payments would drop to 1.75 percent. To make the plans work over the five-year repayment period, creditors have agreed to immediately stop or lower fees and interest. However, principal balances are not reduced.
Here’s an example of how the program will work. Let’s take the typical consumer who sought help from an NFCC agency last year. The average client had $24,000 in unsecured debt. Assuming the average repayment was 2.25 percent of balance, this person would have paid $540 each month to service debt obligations.
If the same person applied and had been laid off, thus eligible for the 1.75 percent hardship category, his repayment would be $420 per month, for a savings of $120.
Creditors who have signed up include American Express, Bank of America, Capital One, Chase Card Services, Citi, Discover Financial Services, GE Money, HSBC Card Services, U.S. Bank and Wells Fargo.
Keating says she hopes other credit issuers will follow suit.
If you want more information about this program or to find out if you’re eligible for one of the newly created debt repayment plans, contact a credit counseling agency in your area that is a member of either the National Foundation for Credit Counseling (www.debtadvice.org, or call 800-388-2227 ) or the Association of Independent Consumer Credit Counseling Agencies (www.aiccca.org, or call 866-703-8787).
Washington Post Writers Group
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