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- Joined: Wed Aug 17, 2011 10:53 pm
- Location: USA
Most major credit card providers provide special repayment programs for those who have quite unintentionally fallen into debt on the account of something unforeseen (like unexpected medical bills) and I will be the devil's advocate here and say that I would take the proactive approach - keep paying, cut down expenses, don't use credit anymore, etc - like everyone else, BUT I would also investigate the possibility of payment plans.
I agree that what others have said can definitely work, but if your interest rates are high and BT offers and other promotional offers are not in reach (and they may not be if you've maxed out cards and your credit score isn't high enough), then you might end up eating way more interest than you need to be.
That said, my plan would be this:
1) Stop using credit and continue to pay on time (and stop being scared of the amount you owe - it's okay, others have been there and done that!).
2) Immediately start cutting back on your expenses - cable, eating out, mobile plans if you don't really need them, that daily cup of joe from Starbucks - and if you can get away with not having to drive to work, consider that, too.
3) From there, calculate how much money you actually NEED (not want, NEED) to use to sustain yourself and/or your family
4) From there, calculate how much you would need to spend per month to sustain yourself with a bit of buffer room in case
5) Factor in a bit of an emergency fund - if you have a pet, potential vet fees, if you have a car, potential maintainance fees - just in case
6) Now look at how much you earn per month and calculate what is left over after your NEEDS fund and EMERGENCY funds have been subtracted out and this is how much you ARE going to dedicate ONLY to paying off those credit cards. Let's call this the Monthly Credit Card Fund.
7) Determine which card or cards need to be paid off the soonest - highest APR, highest balance, etc - and portion out your Monthly Credit Card fund accordingly - making sure that the large balances and the high APRs are being paid as much as possible and as over the minimum as possible. For example, if I had two cards carrying big balances and one had an APR of 20% and the other had an APR of 15% and I had $500 in my Monthly Credit Card Fund, I would portion out something like 300 and 200 respectively.
8) Double check your numbers and commitment - have someone else double check for you just in case.
9) If you absolutely MUST have a credit card to use, pick out the card with the lowest APR and set it aside. That is now called the Mad Money card and for a reason.
9) For the card companies you owe the payments to, call them and be honest about your situation and then ask about payment plans for people suffering unexpected financial hardships and emphasize that you are a good paying customer and definitely want to keep paying on time but you're having problems keeping up with payments as they keep accruing interest. If you are genuinely a good paying customer, they will not take your news and honesty the wrong way. The last thing you need to be is afraid of the card company. Why? Because they WANT you to pay and on time. Of course, they are a company and want to make money from you, but customers paying them back in full eventually IS of essence to them. Having delinquent accounts or bankruptcy doesn't do them any favors.
NOTE and DISCLAIMER: ANYTHING POSTED AFTER THIS POINT ON IS BASED ON PERSONAL EXPERIENCE. No two companies are ever alike, so make sure you listen carefully and note that your own mileage and experience may differ.
10) If the proper message got through to them (if it doesn't persist and ask for a supervisor), you will more than likely be routed to a credit counselor/credit spe******t working in the debt collections, counseling, or delinquent accounts department.
11) Explain to them the situation and explain again what you explained earlier - again emphasizing that the debt was very much unexpected and again emphasizing that you are wanting to keep paying on time and want to pay more than the minimum and are doing everything you can to do so, but really need help.
12) Provided that goes well, there will probably be the offer of a payment plan or hardship plan which will allow you to make interest-free payments to your account(s) for a certain length of time at the cost of defaulting your account, freezing the account for the duration of the payment plan with the possibility of reopening the account post payment plan, and the possibility of having the account's credit line decreased at the end.
13) Emphasize that you have been a good customer so far with your payments and that you would only default on the condition of the payment plan and make sure that the default strike needed (if needed and usually, it is) can be erased once the payment plan is completed. Basically, the default isn't 'your fault' per se - it is a necessary procedure for the plan and nothing more. Also make sure that your account can be reactivated/unfrozen once the payment plan is completed and its old status reinstated.
14) If everything seems good - and make sure you ask questions of the advisor if you have any - you will probably agree to a sum of money to pay each month and they might require auto-pay each month to ensure that you will pay on time for the duration of the program.
15) Remember your Monthly Credit Card Fund you calculated earlier? It's time to give the advisor the amount you calculated out for that particular card that you are negotiating with/for.
16) Make sure you write down the terms of the repayment plan contract you now are bound in and if they can send you a letter and/or email, all the better. The more responsible you are, the more they will be willing to accomodate.
17) Enjoy the benefit of paying off your account with lower or no interest charges for the duration of the plan and watch as your balance diminishes faster than it might have otherwise while not accruing more interest.
Despite everyone's fears of what a card company or loan company might do to you if you admit to having unexpected problems, you have to believe and understand that YOU PAYING ON TIME and PAYING OFF EVERYTHING is critical to them and so helping you could only be beneficial to them. Not only will their willingness to help mitigate people's fears of the looming debt, but it will help people see that managing it IS possible and it will help build client loyalty.
I don't work for a bank and I don't work for a credit card company, but I am a consumer just like you and I have fallen onto hard times just like you and have done a payment plan before. I was scared to do it and embarrassed to do it and worried that it would negatively impact me, but I did it and guess what?
One of my best relationships is with that card company and bank and it is one of the biggest reasons that I keep using that card. My APR for that card is the second lowest out of all of my cards and I know that soon, I will hit a single digit. I seldom, if ever, have issues with the customer service treating me with anything less than respect. I have gotten credit limit increases before without hard pulls. I had excellent credit at the time of my payment plan and I continued to have excellent credit - it went down some as expected, but went back up to the 780+ - and have not had any trouble - even after the payment plan was completed - in getting good credit offers and getting approved.
Remember, THERE IS NO SHAME AND NO EMBARRASSMENT IN FALLING INTO HARD TIMES and THERE IS NO SHAME AND NO EMBARRASSMENT IN ADMITTING YOU NEED HELP AND BEING HONEST.
I know a lot of people don't believe this, but credit companies DO reward humility and honesty.
Wishing you the very best!
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