Learn how to enter into an assistance program to help with credit card debt.
If you are struggling with paying your credit card bills and debts, you do have some options. Find how you can enter into an assistance program with the major banks and credit card issuers. It is possible to contact a lender, negotiate, and get into one of the various assistance programs that they may offer. For example, you can enter into a credit card hardship program, forbearance, debt management plan, negotiate a change to your terms, get fees waived, or more. But they do not offer these deals to everyone, and there is a process to follow for how to get out of debt.
There are 3 key steps to working with a bank, but they can be difficult to implement. No matter what you decide to do, they take time and patience to show results.
Step 1: Explore the different programs to determine the best solution
Spend time reviewing the different types of assistance plans to determine what kind of arrangement is best for you and your financial situation. You have four main options. They include debt settlement plan (DMP), hardship program, workout arrangement, and forbearance. Below is a brief summary of each with links to more details.
Debt management plan (DMP).
These plans involve negotiations with your credit card issuers in an attempt to lower the interest rate on your cards, waive fees, and also to reduce your monthly payments. Traditionally you would have to work with a credit counseling agency or a debt management company in order to pursue this option. However some issuers now have a DMP they may proactively put a consumer into.
Some of the highlights and key facts to know about a debt management plan include the following. All of your credit card accounts will need to be included in the program and the account will be closed. So you will not be able to use your cards in the future. This may not be a bad thing though.
So if you enter into this debt management program, that in itself will not lower your credit scores, but your accounts being closed may lower your scores as your total possible credit to amount of debt ratio will increase. However, a DMP will not hurt your score as much as missing payments or filing for bankruptcy. There are some fees you will need to pay for a DMP. The standard cost of a debt management plan will be somewhere around a $50 one-time setup fee, and an additional $10-30 per month while you're on the plan. Learn more details of these plans.
Debt settlement programs.
This is when you work with a debt settlement company to try to reduce and negotiate your outstanding credit card debt. Many programs have a high success rate in eliminating some 40-60% of the unpaid balance. The percentage will vary widely though based on factors such as your past payment history and current income. The credit card issuer will then forgive this amount that is eliminated, which will greatly help you with getting back on your feet as your total debt obligation will be reduced greatly. More on debt settlement programs.
Credit card hardship program.
Under a workout plan, the issuer will agree to either lower or even reduce to zero the interest rate you pay. In addition to that, they will also usually stop charging you fees such as over limit charges and late fees. The program will usually be temporary. The goal of a hardship case is providing you time to get back on your feet or catch up on the unpaid balance. While like most of these programs and options each lender may implement their own terms to the program, typically in a workout arrangement your credit line will be cut so you can't use the credit card for future expenditures. Some lenders will eliminate past fees and charges. Click here to learn more about hardship programs.
A forbearance program.
These plans will usually suspend your regular monthly payments for a period of time or they will reduce the amount you need to pay. So the credit card issuers may agree that you do not need to pay your monthly bill for say 6 months. So forbearance is a temporary break from your payments, and is not eliminating any debts. More on credit card forbearance programs.
Step 2: Determine your financial situation, examine your income and debt
Review your debt and monthly bills. Ask the issuer for a breakdown of your account. You want to determine how much of it is for late fees, charges, and even be sure you understand how much you are paying in monthly interest charges. You may be shocked to learn how much you pay in fees and interest.
Review your household income. Realistically determine how much you can pay each month. Create a budget to help you determine how much you can afford. Don't overextend yourself. When creating a budget, ensure you prioritize your expenses. For example, you need to eat and pay your mortgage or rent before you pay your credit card bills. Build into your budget expenses for unexpected surprises, such as medical emergencies and unplanned expenses, such as car repairs. Unexpected things will happen and you need to plan them into a budget. Consider using the service of a counselor from a non-profit organization when creating a budget.
Step 3: Call the credit card issuer to negotiate.
This really requires patience. You may need to call repeatedly. The primary reason being it can be very difficult to get the right person on the phone. Not everyone can offer consumers a settlement that addresses your problems.
Those customer service representatives who answer the 1800 number are not usually likely to have the ability or authority to negotiate with you and grant you the debt relief that you need, even if they don't admit it. You will need to tell them that you need the department that handles hardship programs, settlement or workout arrangements, modifications, or other assistance programs. You may need to ask for their supervisor or someone who is empowered to negotiate.
It is very important to remember that every bank, lender and credit card issuer is its own unique company, with different terminology, policies, special programs, and department names. Some key terms or department names to ask for include in-house help program, card modifications, workout program, loss mitigation, or hardship programs.
If and when you get the correct person on the phone, now is the time to act. It may take repeated calls and you being transferred so be patient. Once you have the right person on the phone, get the person's name, telephone number with extension, and their ID number (if there is one). Then calmly explain what you need. Be friendly, to the point, and never be emotional or angry. That is extremely important. After you conclude the call, take notes of what was discussed and a summary of the call. Retain your notes in a notebook, and include with whatever letters or communication you get throughout the process. Always keep detailed notes of every phone call made.
Be honest, upfront, and open to suggestions and negotiations. This is a process. You need to be patient and know that it will take time. Plan on there being multiple phone calls and numerous people you will need to talk to.
When to ask for help and call
While some people will say you should call and ask for assistance as soon as you realize you have a problem, there may be some downside to that. What can happen is it can lead to a so called "Catch-22 situation.” Banks and credit card issuers are reluctant to offer you options for assistance until you truly show that you are in trouble. This will then make it difficult for proactive consumers to get help who have missed one or no payments and have otherwise done a good job of staying current.
The downside is that if you start missing payments, that will damage your credit, but then the credit card company may be more open to offering aid. So, the best advice is to start calling, and keep calling, as soon as you are getting close to missing a payment. Many card companies are now trying to be proactive, and are trying to help consumers stay current and get assistance before they miss a payment, even before the account is past due. This is a significant change from their past practices.
With most credit card issuers are banks, the unpaid credit card debt will often moves to a collections or delinquency department after 3 months. When this happens you may have another opportunity, and a fresh start, to ask this department for credit card assistance.
The next step in the process is usually at the 180 day mark. After 180 days pass with the bills still not being paid, the company will then usually proceed to remove your unpaid debt from the books. So this is in effect the company writing off the balance and a charge-off to you account.
This process involves a few steps and can result in some different outcomes. To recoup those losses when the debt is written off, the credit card issuer could actually decide to retain the debt and pursue legal action against you. They could sue you. Or they could decide to sell the debt obligation to a third part collection agency, and the rates for this will generally go for around 3 to 15 cents on the dollar. They would then take a loss on the balance of the unpaid debts.
However, before you get to the 180 day mark, so as you approach the 91 and 179 day mark, the clock begins to tick from the lender's point of view. The bank or credit card company wants to get paid for their bills, but the time that they have to collect or transfer the debt to some other party is evaporating. So as indicated above, during this period the balance on the account is transferred to the delinquency division of the card issuer, which is motivated to make a deal with you before they are forced to write off the debt. So they would rather collect something from you that to write off the majority of it, so they are most likely to negotiate during this time frame. So this can be another good opportunity for the consumer to try to make a deal with the bank or lender and ask about steps they can take for how to get assistance.
It is important to keep in mind that due to the weak economy, and a terrible housing market, creditors are less likely to sue as they realize that the costs to take legal action are increasing rising while the amount they may be able to collect from lawsuits are decreasing (due to the poor economy). So this is a big reason why they are implementing the policy of trying to negotiate with creditors as soon as possible and offer them options and plans to get out of debt. Read examples of issuers offering plans. More.
How to deal and negotiate
Typically there is some type of event that causes you to fall behind on your bills. For example, maybe you lost your job, faced unexpected medical bills, a recent divorce, car needing major repairs, or similar unplanned for expense or financial emergency.
Be open, honest, calm, and forthcoming with the lender. Sum up your personal situation. Explain that your financial picture has changed, and go over why it has changed, but be sure to stress that you still want to honor your commitment on your debts and unpaid financial obligations. You may decide to either ask what they can offer you or you may decide to propose your own plan and approach for addressing your unpaid bills and debts. They may say yes, not, or more than likely pass you on to another department or representative.
Some different tactics worth trying include saying if you can't cut my payments by a certain dollar amount, I will not be able to pay my bill. Another approach is to try to get a better annual percentage rate (APR) on your account, which will in effect automatically lower your monthly payments (as you will pay less interest expense) and shift more of your payment to paying down the principal.
Never hesitate to negotiate. In almost all cases you do not want to accept the first offer. You wouldn’t accept the first offer if you were buying a car or house, so do not accept the first offer when negotiating your debt either. And, if you may really be considering bankruptcy, then mention it. More tips on how to negotiate.
Get any deal in writing
After you agree to a deal, get it in writing. After all, people come and go, banks merge, employees change jobs, records can be lost by the credit card company. Get for your protection any agreement in writing. Do this before agreeing to terms or entering into a contract. Be sure to get any deal in writing before you begin to pay.