Credit Card Relief?
Looking for some credit card relief, Ben asks:
"When is it too late to work something out with a credit card issuer on your credit card debt?"
Ben, you have several options for help with credit card debt. You didn't tell us where you are in the process, so we'll try to hit the high points on different stages.
Unfortunately, your options are more limited when looking to the card issuer for credit card relief.
For the most part, the credit card issuer will not offer any credit card relief until you are behind in your payments. Some won't offer assistance till your payments are more than 60 days late, although help may be available from some once you're 30 days past due.
It's maddening, and doesn't seem to make much sense that they require you to trash your credit score before they'll help, but it's just the way their credit card relief programs are set up. As long as you can continue making the minimum payment, you don't qualify for assistance.
It is very difficult to find out exactly how late payments affect your credit score, also known as a FICO score (after Fair Isaac Company, the company that generates the credit score used by lenders).
USAA recently reported, based on info from Fair Isaac, that a 30-day late payment
would result in a 60 - 100 point drop in your credit score
. On the FICO forums, however, one member reported that her credit score dropped 70 points for a 90-day late payment
. If that is accurate, it doesn't look like 90 days late is much worse than 30 days late, although I've always heard exactly the opposite. So I wouldn't automatically assume that just because the account was 30 days late, it would be OK to let it go to 90 days late.
If you're just realizing you're over your head in credit card debt, and your FICO score is still good, you might try debt consolidation
, where you take out a loan to combine all your credit card debt into one loan to pay off the cards. That one payment will usually be lower than the sum of individual payments on the various accounts.
If you do opt for debt consolidation, pay off the cards and put them away
some place safe, where you won't be tempted to use them. One of the recommendations I've heard is to freeze them in a block of ice in your freezer, so it's not so easy to grab them and run out the door when you see a sale advertised. (Don't know what that does to their magnetic strip!)
If you don't put them away, you'll be tempted to use them, and then you'll be even further in debt. You have
to have the discipline to not use the cards once you pay them off.
Don't cancel the cards! Doing so will likely lower your credit score, because you'll have less available credit. Just save them in case you do have an emergency and REALLY need to use one. And no, a sale at your favorite store is not an emergency!
Many credit card companies, once you've gone 120 to 150 days late
, will send you a letter offering to settle your credit card debt
for less than you owe, and sometimes the savings can be substantial, even 50% or more. But you will usually have to come up with the total settlement amount in not more than three installments. This seems rather silly, because if you had that amount of cash, you'd be making the regular payments, wouldn't you?
Most will write it off as a bad debt once
the account goes 180 days late, and send it to collections.
But you can continue to negotiate to pay off credit cards
even after the account has gone to collections. Understand that if the account is with a collection agent, some of them can be rather rude, and they may not want to negotiate (because they typically get paid a percentage of the amount they collect). Be aware that they are making a record of everything you say, even if the call is not recorded, so be very circumspect in what you say. Don't give them any extraneous information. Stick with "just the facts, Ma'am."
Do not let a collections agent harass you, in violation of the Fair Debt Collection Practices Act. Learn your rights under the act, and don't be afraid to assert them. (Sorry, there's not enough space in this article to discuss them -- we'll address them in another article.)
If you can't negotiate a deal with the collections agent, the case will likely be sent to a collections attorney. They will send you a collections letter notifying you that they have been retained by the creditor to collect the debt.
Sometimes, this is your best opportunity to negotiate a settlement
, especially if you've not had any luck with the collections agent. The attorney is realistic and pragmatic about the time and effort required for a lawsuit. And he is likely also being paid a percentage of the amount collected, so he won't want to expend a lot of time and effort if the amount is small.
But don't just blow them off because of this. If you don't respond after being served with a lawsuit, they will get a judgment against you. They then can garnish your wages and levy on your property (have it seized by the sheriff and sold to pay off the debt).
You may be able to negotiate a new payment plan with lower monthly payments
, but they most likely will want a lump sum settlement, or at most 3 installments.
There are many factors to consider in deciding your best credit card debt relief, and you may need to consult with a bankruptcy attorney
to learn what your options are and make the best decision for your situation. Many will offer the initial consultation for free.
Notice we did not say file for bankruptcy. That should be a last resort, only when you have no other options. The new laws make it harder to qualify for bankruptcy anyway. But a bankruptcy attorney will know what your options are, and can recommend the best course of action for your circumstances.Debt settlement
companies will negotiate with the creditor for you, for a fee. And there are companies who will enroll you in a Debt Management Plan
, where you make a monthly payment to them, and as your account balance grows, they settle your debts for you, one at a time. You can do this yourself.
Be VERY careful with these companies. Some are scams. Watch out for large upfront fees and large handling fees. If these are part of the plan, find another company or do it yourself. You don't need to pay someone else to do it for you.
Ben, if you want to post again in the comments to let us know where you are in the process, we might be able to provide you with more information.
Our best recommendation is to take advantage of a free consultation with a bankruptcy attorney to learn what your options are. Some of them offer a debt settlement service as well and will negotiate with your creditors for you.
Please let us know how this turns out for you. And good luck!
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