Got Credit Card debt? You may be in luck…
January 2, 2009 – 9:44 pm
If you’re delinquent on your credit card balances, now may be a good time to pay down that debt. According to an article in the New York Times, in exchange for a hit to their credit score, borrowers may be able to negotiate significant discounts on their outstanding balances with increasingly desperate card companies:
After helping to foster the explosive growth of consumer debt in recent years, credit card companies are realizing that some hard-pressed Americans will not be able to pay their bills as the economy deteriorates.
So lenders and their collectors are rushing to round up what money they can before things get worse, even if that means forgiving part of some borrowers’ debts…
Every major credit card lender is giving its collection agents more leeway to make adjustments for consumers in financial distress…
Debt collectors, who are typically paid based on the amount of money they recover, report that the number of troubled borrowers getting payment extensions has at least doubled in the last six months. In other cases, borrowers who appear to be pushed to the brink are being offered deals that forgive 20 to 70 percent of credit card debt…
Just as lenders competed for years to be the first card to be taken out of the wallet, they are now competing to be the first ones paid back.
The article notes that the 2005 bankruptcy legislation for which lenders pushed so hard may be coming back to bite them in the ass.
Credit card industry data indicate the average debt discharged in Chapter 7 bankruptcy has nearly tripled since 2004. And in Chapter 13 bankruptcies, secured lenders like auto finance companies routinely elbow out unsecured lenders like card companies, trends that have contributed to the card lenders’ willingness to settle.
There are drawbacks, particularly the hit to your credit score:
Borrowers should not expect sweetheart deals. Card companies will offer loan modifications only to people who meet certain criteria. Most customers must be delinquent for 90 days or longer. Other considerations include the borrower’s income, existing bank relationships and a credit record that suggests missing a payment is an exception rather than the rule.
While a deal may help avoid credit card cancellation or bankruptcy, it will also lead to a sharp drop in the borrower’s credit score for as long as seven years, making it far more difficult and expensive to obtain new loans. The average consumer’s score will fall 70 to 130 points…
It would be unwise to use this info as an excuse to fall more deeply into debt, or to fall behind on your payments hoping for forgiveness later. Playing chicken with your credit card company feels pretty foolish to me. On the other hand, if you’re already in debt, this could be a great time to get out for good.
Posted in credit crunch, debt |
8 Responses to “Got Credit Card debt? You may be in luck…”
Historically, consumers with large amounts of unsecured debt (greater than $15k) are better off dealing with an accredited debt settlement company instead of trying to negotiate on their own (60% reduction vs 20%)
My average client has not yet missed any payments but their cards are maxed out and they are struggling to make the minimum payment. Settlement is a better alternative and has less affect on the credit report than bankruptcy.
By Steve on Jan 3, 2009
Pay down Credit card debt….with WHAT…??
people who buy things on credit cards at 10-15-25% interest rates…HAVE NO Money…..
They have ALready spent the next months & years
“savings”.
One of our Friends…thought she had “saved” up 2000$….but had just not MAXED out the credit limit….YET
Happy new year
Mike
By Mike on Jan 4, 2009
Where is the cash coming from when you negotiate the discount on debt of the credit card? My clients are going to court (as the Defendant) and filing a motion to force a settlement that wipes away future interest and pays off the entire “current” principle balance over 60 months. The client can always go back for a discounted cash payoff.
Have a Great 2009
By DeedInLieu on Jan 4, 2009
There is a growing number of desperate wise asses like me, who have borrowed 100,000 at 3 % apr (0% interest for 12 months, 3% tranfer fee) by flipping 4 of cards at once,that is, on the same day (that way all 4 companies look up your credit record and see a relatively clean credit record), Then we go to the stock market, buy 100,000 in stock, which then entitles us to 50% margin (at 6% apr), so we buy another 100,000 stock, soon we have a 200,000 dollar account that allows us to “day trade” another 200,000. buying in the morning and closing out before end of trading day. I just bought 125,000 of USO and ran it up 3 points last week. I am up 66% since oct (thats $66,000.) I’m getting high on O.P.M. other peoples money
I have a raft of 450,000 dollars of stock I push around almost for free, I collect dividends, sell call options, make about 5-10% a month ($20,000) profit, not to mention profits on stocks I bought at lows that have run up and been sold. Its a gas pressing the button on 100K trades, selling them and hour or two later. Since its all unsecured debt, whats the worse thing that can happen? BK, oh! what a stigma in this enviroment. With profits I buy groceries and gold coins. My plan is to pay off the credit cards before introductory interest rates kick in next fall with gold stock profits as the dollar hyperinflates.
Bear Stearns, Lehman, showed me the way— lever up 40 to one, to devil with the consequences.
I have to do something to get back the 401k savings that Ameriprise bungled to 50% loss.
cynical, yes risky, yes endangering the market like 1929 with over leveraged positions, yes…but that what all the rich folk did in their hedge funds, thats why such a sell off is happening. Frankly I don’t care…I’m all in, all or nothing - no guts no glory. If this doesn’t work, and I can’t work,
and Social Security doesn’t work, I’ll come up with an even more daring scheme. desperate times call for desperate measures. Thanks for the space to talk, my wife wonders where all the money is comming from and why the cards are maxed out…I needed to talk to someone
By wildass on Jan 5, 2009
Wildass,
I totally support you. Why when a bank fails it needs to be bailed out, yet mr.Wildass supposed to only “earn” the same counterfeit bills?
If there is no risk for at least one entity, then that entity should be the people. (This, of course means that I am against anything artificially made to be no risk, but since there is, then Joe Q Public must have it, I agree).
I do not see any immorality in your actions. Remember, those CC simply made the money up in the first place, to keep you for a fool.
Good luck to you, Wildass.
By Sane on Jan 6, 2009
Before taking that hit to your credit score through a settlement, call your credit card company and see if they’ll lower your interest rate to a point where it’s worth your while to just pay the thing off. Make it a regular practice to call your credit cards to ask for a lower rate. I have one client who owes over $20,000 on a Visa that was at 18%. He spoke with a ‘rate specialist’, touting his rising credit score and declining balance and got his rate cut in half, from 18% to 9%! His monthly interest charge was instantly reduced by $150, which will help him pay off his debt even sooner.
By Financial Planning for Expectant Parents on Jan 7, 2009
I actually went the route of debt settlement. I put over $200,000 into a business that didn’t return the investment as I expected, leaving all of that debt on credit cards. I was paying nearly $4000 a month in interest, burning through savings and looking at destitution. I wasn’t interested in the companies that wanted to make me thing I needed them to settle my debt and charge me for it, so I jumped in my self. I successfully reduced my credit card debt from $212,000 to $30,000 in six months and saved well over $100,000 in written off debt. In answer to one of the commenters here about what money I used, the truth is that in some cases the actual settlement amount cost me little more than I would have just paid in interest over the months that I hadn’t been paying my cards. I’ve written a book the describes the entire process of going up against six, major U.S. banks and winning! It’s called “The Do-It-Yourself Bailout.” You can check it out at my website, http://www.SettleYourCreditCards.com, and ask me questions on my blog there. Kenny Golde
By Kenny Golde on Feb 2, 2009