More and more Americans are struggling to pay their credit card bills. With the number delinquencies and charge-offs increasing across the country, credit card companies are increasingly likely to modify and negotiate the terms of your credit card account. Modifications can include changes such as interest rate reductions, lower minimum payments, and even a reduction of the balance. Banks and credit card issuers hope that they can recover whatever money they can from you for unpaid bills, rather than letting the debt go entirely uncollected, or see you file for bankruptcy.
In an effort to both help consumers, and protect their own interests, all conditions of the agreement can be modified. Late fees can be waived, interest rates altered, and the timing or the amount due for monthly minimum payments can be changed. They are all open to negotiation and modification.
Up until fairly recently, common industry practice was that you needed to be late with making a few payments before you could get a credit card modification. However, today that has changed. Now the mentality of issuers has changed dramatically and they want to do everything they can, under their power, to collect money on any outstanding bills and debts.
As just one example, this year Bank of America is stating that they expect to complete over 1.2 million credit card modifications, which is a 20 percent increase from a few years ago. Also, JP Morgan/ Chase has recently expanded eligibility for its repayment programs to include borrowers who may be in earlier stages of delinquency on their accounts.
While negotiations and changes to credit card agreements are becoming more common, you still can’t say that just anyone can rewrite the terms of their card agreements. Modifications are still reserved for those families and individuals who are in true financial distress or have an emergency.
However, if you’re having trouble paying the monthly credit card bills, it is definitely worth your time to pick up the phone to call your credit card company to negotiate your terms, ask for a modification, and try to request more manageable repayment terms.
While most companies will not admit exactly who qualifies for credit card modifications, many experts say lenders are easing up on eligibility these days. If you want to qualify, in general you need to show that you can’t keep up with your monthly payments for a much longer period of time under your current circumstances.
While each lender does have their own criteria, among the factors a company will consider before changing your terms are your payment history, your income, the size of your credit card balance and any other debts and assets you may have. Keep in mind that a financial emergency or a recent job loss could be another reason for you to request leniency from the issuer.
To get modified terms to your credit card agreement, you do not need to be behind on your monthly bills either. Sometimes missing more than one payment can make the process even more challenging. Both HSBC and Bank of America say consumers don’t have to be late on a credit card payment to qualify for a modification to their account.
Remember that a credit card company knows almost everything about your financial picture and condition, including your credit scores, spending habits, and income. So you probably will not have success in negotiating an adjustment if you are requesting adjustments just to save a few bucks per month.
The three most common ways to get debt relief from a credit card company include lower interest rates, debt forbearance, and entering into a debt management plans.
Forbearance: When a lender gives you temporary relief on your monthly payments, that is considered forbearance. So you will not need to pay your monthly bills for a defined period of time. During this timeframe the late fees are generally waived for the forbearance period, meaning that you will not get a delinquency mark on your credit report and it won’t lower your credit scores. However, interest charges do typically continue racking up, so try to negotiate that. The timeframe granted usually lasts only for a few months, so be sure to take advantage of this window.
Lower interest rates: An important way to get credit card debt relief is from a lower interest rate. Or, another way to think about this is you may just want to ask that a recent hike not be enacted on your account. Find how to negotiate the best terms. More negotiate debts.
Debt management plan: Probably the most serious debt relief option your credit card company could offer to you is what is known as a debt management plan. This is not as much of a modification to your account as it is you working closely with a credit counseling service to put in place a plan to repay your outstanding debts. Some companies, such as Discover Card, will propose this method to get out of credit card debt if all other options won’t fix the debt problem.
When you go into a debt management plan, interest rates are lowered and late fees are usually waived. You will still pay all of the debt yourself, although you will likely make those payment in smaller amounts over a longer period of time.
There is usually a monthly fee to pay for these plans. Credit counseling agencies will normally charge a fee of around $20 to $50 per month, but it may be waived if you can’t afford to pay for the service. Another one of the negatives of a debt management plan is that likely your account will be closed.
It may take a while to get of of debt from these plans as well. While the exact timeframe will depend on the amount of money you owe on your account and your income, the repayment plan period could take several years. Last, but not least, the DMP will be on your credit report for the duration of the plan, so other lenders may be wary about extending your credit.
However, there are many benefits to trying any type of modification. The most obvious being these tactics work and will get your of of debt, and also when you finish the debt management plan you will have pretty good credit. More on debt management plans.
There may be some potential repercussions if you ask for a credit card modification, especially if you are not in a poor financial condition. Make sure you are facing a true hardship before asking for assistance. So always be sure to think it through. As asking for help could end up hurting you.
If you call the credit card company, you create the chance of them doing something adverse to your personal situation. For example, they may “flag” you as a risky customer, which might result in a lower credit limit, or, probably worst case, the closure of your credit card account.
Also, you can be sure that card companies are going to hold you to the terms of your current agreement if they think you can pay, and while they are more open to modifications, they are not going to fall over themselves to negotiate.
However, never be afraid to pick up the phone to ask for help if you really do need an adjustment to your credit card accounts, as the alternatives of unpaid bills, or a bankruptcy, is much worse.
Debt settlement is when you agree to pay a portion of your unpaid credit card balance and then you have the remainder of it written off. Unlike a credit card modification to your existing account terms, a debt settlement will have an impact on your credit profile and ratings. More on debt settlement.
While each situation is different, debt settlement may be your best option if you do not truly don’t think you’ll be able to keep up with your monthly payments, or if you think that continuing to make your monthly payments will put you in danger of filing for bankruptcy.
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