January 28, 2010
Getting Forebearance From Credit Card Companies
Getting Forebearance From Credit Card Companies Share on Facebook
To err is human, especially when it comes to credit. To forgive is divine, but when it comes to your credit card company, that’s probably not going to happen.
To forbear . . . now, that’s quite a different story.
As more people lose their jobs or otherwise come under financial stress in this economic crisis, many credit card companies are granting one or more types of forbearance to hard-pressed cardholders.
What is forbearance? The most important thing to remember is that it’s not forgiveness; you still must repay your credit card debt. But forbearance programs can offer temporary reprieves from your obligations.
In some cases, you might be able to postpone payments for six months to a year or even longer. Your minimum monthly payment might be lowered. Your interest rate might be reduced. Or some fees might be eliminated.
It depends on your particular situation.
“Our objective is to help customers who are experiencing financial hardship,” said Betty Riess, a Bank of America spokeswoman. “If a customer cannot afford to make regular payments or falls behind on an account, our customer-assistance department proactively reaches out to them.”
Wise consumers don’t wait for that.
Credit counselors and card issuers say cardholders who lose their jobs, encounter medical emergencies or find themselves in other financial predicaments should contact their creditors before the situation becomes acute.
During the last quarter of 2008, as the economy truly tanked, Citi accepted about 350,000 accounts into its forbearance programs, which can offer an adjustment of loan terms or a consolidation of balances.
“Citi is offering new forbearance programs with broadened eligibility criteria, affecting accounts in earlier stages of delinquency,” the company reported Feb. 3 in a progress report related to its participation in the federal Troubled Asset Relief Program. “These include payment incentives, match payments and balance-consolidation programs that accelerate the reduction, or amortization, of card loans without materially increasing the cost to consumers.”
The company said it also was ramping up programs to help customers who are current on their accounts but are beginning to find themselves in need of help.
Meanwhile, Bank of America modified nearly 850,000 credit card loans in 2008, Riess said.
Discover Financial Services, with 50 million Discover Card members, is beefing up its online and call-center operations that serve card members looking for help, Discover spokesman Matthew Towson said. Assistance ranges from individualized payment options to deep — though temporary — reductions of interest rates for people experiencing “severe hardships.”
In addition, Discover stops sending balance transfer offers, blank checks and other promotional mailings to accounts that begin edging into the high-risk category, Towson said.
At JPMorgan Chase, counselors have the option to restructure credit card loans by reducing interest rates, suspending future late or over-limit fees and extending repayment terms, spokeswoman Gail Hurdis said.
Card issuers trying to reduce risk
While all of this sounds socially responsible, it also serves the best interests of card issuers.
The reason: Credit card loans — and don’t fool yourself, every time you charge something to a card, the card issuer is lending you that money — are unsecured loans. That means that if you file for bankruptcy, the credit card company won’t get paid at all.
Thus, card issuers have an interest in keeping you out of bankruptcy, even if that means extending or lowering your payments or otherwise assisting you.
And they have tons of money at risk here.
In 2007, $1.9 trillion in credit card transactions were completed in the United States, according to a Citi study. Right now, credit lines totaling about $4.8 trillion are open in this country.
Citi reports that its loss rate for North American cards was 8% during the fourth quarter of last year, a sharp increase from 5.5% during the same quarter of 2007. Fitch Ratings, in a report released Feb. 4, said it expects credit card charge-off rates soon to breach 8% and to climb to near 9% by late 2009. Charge-offs occur when card issuers give up on bad debt and write it off their books.
Thus, card issuers say they are ready and willing to help you — though the degree of assistance will vary, depending on your situation. Also, remember that interest will continue to accrue during any extended payment period and, sooner or later, your credit card loan must be paid in full.
How to ask for forbearance From Credit Card Companies
If you are in a financial jam and need a bit of relief from your credit card obligations:
Stop using the card and adding to the balance due. You don’t want your card issuer to think you’re taking advantage of the situation.
Call the customer-service number listed on the back of your card.
Explain your situation calmly. If you’ve had a good payment record in the past, emphasize that to the customer-service agent. Ask to be considered for the company’s forbearance or relief programs. It’s really as simple as that. “If you think you’re going to have difficulty staying current with your payments, reach out to your card issuer,” said Bank of America’s Riess. “If customers believe they’re having problems, we want to try to help them.”
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