When people face serious financial problems, getting out of a credit mess may ultimately involve going bankrupt or losing their home. A key part in turning the tide is eliminating as much credit card interest as possible and paying down the principal. If you’re carrying high credit balances or your credit cards are maxed out, you can turn the tide.
In Part 1 of this series, I described the merry-go-round that my husband and I have been on in terms of obtaining a loan modification. Obtaining a workout on our credit cards, however, has proven to be a different experience.
You have probably heard of people who have gotten great deals to pay off their debt, sometimes at zero percent interest. Nevertheless, when you call your credit card company and ask if you can get a lower rate, the answer is either “No” or “You already have the best available rate.” Sorry, but a 15 percent interest rate certainly doesn’t seem that way.
What’s especially frustrating is that you if you do fall behind, your interest rates can shoot up to 28 percent or more, placing you in an even more precarious position.
Break out of high-interest-rate jail
Last summer a longtime friend shared her experience about how she climbed out of her credit mess with the help of a credit attorney. Because of all the issues my husband and I had faced, I decided to see if this was a viable option in terms of reducing the 15 percent to 21 percent interest rates on our credit card debt.
When I contacted the firm, their attorney explained that there was an upfront fee. The way you could get the credit card companies to negotiate with you was to miss six months of payments. While this was going on, you would have to put up with the ongoing calls from the credit card companies and collection agencies. Nevertheless, this would you give you the money you needed to pay their fee.
The psychological cost of doing this seemed so high to me that it didn’t seem worth it. Then again, since we were dealing with the loan modification, I wondered if the credit card companies had some other option that could work for us. It turned out that they did.
Ask for a balance liquidation program
Since our highest balances were on our Chase business cards, I began there. The first thing I did was to explain the nature of our hardship and that we wanted to pay off our current balances. I repeatedly mentioned our intention to pay the credit balances in full — this is a key point. I also offered to provide documentation of our hardship if needed. That proved to be unnecessary.
I explained to the customer service representative that we could no longer sustain payments at the high interest rates. The representative repeatedly inquired what rate would work for us. I indicated to her that our goal was to pay the amount in full and asked if there was a workout program if we closed the account. After a two-hour back-and-forth, we settled at a 6 percent rate, closed out the card and agreed to a plan that would pay the full amount over the next five years. The program we were enrolled in was known as a balance liquidation program.
Encouraged by the results, I tackled our Citibank cards. We went through a similar process with a couple of different representatives. Again, I repeatedly told them our goal was to pay the amount owed in full. Citibank let us keep our current payment, except now the entire amount was going to the principal and would also be paid off in five years.
A key point to note in each case is that if you miss a payment, you agree to be bumped out of the program and your rates will be increased to even higher than they were before. They also required an automatic payment from your checking account.
I wish we could say we had a similar experience with American Express. Their loan workout process starts with their service center in India. After talking to seven or eight different representatives, each with conflicting information about what their program was and what is required to get into it, I asked for a supervisor who could refer us back to someone in the U.S.
Even after talking to the U.S. representative, however, it took another 60 days and numerous phone calls to get in their program. Although they claim to have multiple programs to help their customers, their only program (at least at the time we applied) was at 1 percent for three months, nine months at 9 percent, then back to your existing rate. In other words, don’t waste your time trying to negotiate with them.
Credit score impact: a shocker
When our mortgage lender turned down our recent loan modification request, I asked about my credit score, assuming it had been lowered due to the balance liquidation programs we had entered. Interestingly, it was still in the “excellent” range.
Every person’s situation is different. For us, a balance liquidation program has been a godsend. To learn more about what your credit card provider may be able to provide for you, do a Google search for “credit card companies balance liquidation.”
If you or your clients are stuck with high rates and have legitimate hardship, there are alternatives. Explore what is available and be persistent. And, by the way, if you’re still using those credit cards, do your best to transfer over to a prepaid credit card or debit card. The money you will save will be substantial.
Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, author and trainer with over 1,000 published articles and two best-selling real estate books. Discover why leading Realtor associations and companies have chosen Bernice’s new and experienced real estate sales training for their agents at www.RealEstateCoach.com/AgentTraining and www.RealEstateCoach.com/newagent.