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Credit Card Firms Now Willing to Negotiate

Thursday, September 10,2009 08:21 PM

In spite of some recent reports claiming that the worst is over, people continue to default on their credit card payments. Whether it's due to job loss, owning a struggling small business or simply an inability to keep up with higher interest payments and penalties imposed by the credit card companies, the default rate is huge:

The delinquency rate on U.S. credit cards, which measures the proportion of accounts that are more than 30 days past due, was 5.73 percent in July, up from 4.5 percent a year earlier, according to Moody's.

So now, finally, the credit card companies are coming to the table to talk to consumers who are on the brink of trouble - or already in the thick of it.

credit card issuers are quietly negotiating with borrowers rather than giving up entirely on millions of debts. Lenders are looking to restructure credit card accounts by lowering interest rates or minimum monthly payments for a specific period of time, waiving fees, or settling the debt by accepting less than what is owed.

They don't advertise this, of course, and they certainly hope that they won't be deluged with calls ... especially from people who can afford to pay. That's why they are getting proactive about calling consumers that are still in good standing but appear to be about to fall.

Samuel Wang, a spokesman for Citigroup, said ... "Citi is proactively reaching out to its customers who are not delinquent but who may be showing signs of financial stress."

"The issuers are not trying to kid themselves. If someone's lost their job, that's it. Or if someone has just been reduced from a full-time to a part-time job, that's it..."

Cool. So what is there to consider if you find yourself in this position? Play poker: One cardholder mentioned in the Washington Post article was offered a 6% interest rate only if he closed his account. He took some time to contemplate what would happen to his credit score if he accepted but heard back from the card issuer within a few days, this time offering 0% interest and 12 months to pay. He took it. Protect your credit rating as best you can. When a card issuer makes a deal, they almost invariably require that the account be closed immediately which, as we all know, can ding your rating.

...borrowers can pay a price if they're granted a modification. Forgiven debt could be taxable and can tarnish the borrower's credit report for up to seven years. If the bank reports to credit bureaus that it forced the borrower to close the account, that, too, could damage the credit history, jeopardizing chances for future loans. Finally, if a borrower has a lot of debt, a closed account could hurt a credit score. If the borrower has to give up his card, then a key figure used by lenders to determine creditworthiness -- the ratio of outstanding debt to available credit -- can soar, harming the credit score even further.

In the end, everyone has to decide for themselves if it's worth it or not. After all, nothing hurts your credit score quite like defaulting or, worse, bankruptcy. Read the whole article here: http://www.washingtonpost.com/wp-dyn/content/article/2009/09/09/AR2009090903166_2.html?wprss=rss_business/personalfinance