Kate is a friend of mine who recently went through a divorce. She has two young children, and after years as a stay-at-home mom, she found herself on her own, in debt, and struggling to keep up the payments on her credit cards. For a while she made the minimum payments, but when she found that she could no longer afford them, she simply stopped paying anything at all. She didn’t answer the phone, didn’t open her mail, and deleted emails without reading them.
Why did she do this? Simple. She didn’t know what else to do.
Kate isn’t the only one who has ever stopped making payments on a credit card or avoided phone calls from creditors – in fact, with the recession only just behind us, many people are faced with piles of debt that they can’t pay. For these people, is there any alternative to declaring bankruptcy?
Yes, there is.
You might be surprised to hear how Kate managed to get out from under her debt and create a manageable, affordable payment plan with the help of her credit card issuer – Chase, in her situation – and without calling credit card counseling services or lawyers. Here’s what she did – and what you can do too, if you find yourself in a similar situation to Kate.
Sit Down and Take Notes
Kate knew that she needed to call her credit card issuer, but she was nervous. She didn’t know what to say. So the first thing she did was take a look at what she owed, what she was spending, and what she was earning, and write it all down.
You can do this online or on paper – either pull out those unopened statements and look at them, or log into your account and take a look at the total. You’ll need to write down some basic information before you pick up the phone. Here’s what you should know before you call:
- How much do you owe this credit card issuer? Write down the total.
- How much money are you making each month? Include all your take-home income, not counting tax withholding.
- What are your monthly expenses? You’ll need to have a rough idea what you’re spending on housing, utilities, groceries, childcare, gas, and other necessities – your credit card issuer will use this to help determine how much you can afford to pay each month.
- What led you to your current situation? Whether you are unemployed, dealing with illness or disability, in the middle of a divorce, or simply in over your head from careless spending, have an idea what you want to tell your credit card issuer – maybe even practice saying it out loud. Remember, you are not the only person who has dealt with a situation like this, so don’t be afraid to be honest about your circumstances.
Take a Deep Breath and Pick Up the Phone
This is probably the hardest step, so take a big breath and just do it! Be ready to spend some time on the phone – get comfortable, try to be in a quiet place where you can concentrate, don’t chew gum or eat, but keep a big glass of water next to you in case your mouth gets dry. You can do this!
Before you call, make sure you have your card, or your account information written down where you can easily find it, and keep your notes close by. It’s also a good idea to have your checking account information handy, including your account number and routing number, in case you want to set up automatic payments with your card issuer.
You may need to navigate a few menus to get to a customer service representative, and once you do, you might be transferred a couple of times. Be prepared to tell your story a few times until you get to the right person. In Kate’s case, it was a Chase Payment Solutions representative, who told her about Chase’s Balance Liquidation Program.
The Chase representative asked Kate what she was making, what her expenses were, and what she thought she could afford to pay each month. She then offered Kate a lower APR and a low monthly payment, with the stipulation that automatic payments would be set up and must not be missed, or else the agreement would be nullified and she would be in default.
The whole call took about twenty minutes, and there were times when Kate was on hold, or had to listen to the representative read off terms and conditions, and she had to be recorded agreeing to the Balance Liquidation Program.
How much did Kate save in less than a half-hour, with one phone call? Almost $10,000.
10K Saved Over Five Years – the Nitty-Gritty
Here are the terms Kate was offered (and remember that your experience will vary – this is just an example).
She was carrying a balance of $4,600 – over her limit of $4,500 – at a penalty APR of 29.99 percent, because she hadn’t made payments for about three months. Before the penalty APR, she had an ongoing APR of 13.24 percent, which she was hoping Chase would reinstate if she pleaded her case. After explaining her circumstances, Chase did even better, offering her an APR of just SIX PERCENT, with budget-friendly payments of $90 per month. Before, the monthly payments were about $170.
At that 29.99 APR, it would have taken Kate 20 years to pay off her balance, and she would have paid a total of $14,939. With the six percent APR, Kate will pay off her Chase card in full in five years (60 payments) and pay a total of $5,400.
Even better, if Kate finds that she’s able to pay more than the minimum each month, she’ll pay off her balance even faster, with no penalty. She won’t be kicked out of the program if they see she can afford to pay more – one of the things she was concerned about. As long as she makes the monthly payment each month (it’s automatically withdrawn from her checking account, on a date she got to choose herself) she’ll be in the program and be on track to get out of debt.
What’s the Score?
Another thing Kate was concerned about was her credit score. She knew that her formerly excellent credit was already damaged from her lack of payments, but she was worried that the Balance Liquidation Program would hurt it even more. She knew that filing for bankruptcy or settling with her credit card company would be reported negatively on her credit history, and she wanted to avoid that.
Good news – participating in a program like this won’t hurt your credit (though it’s always a good question to ask your customer service representative, as programs do vary). Kate’s Chase representative reassured her that no negative information would be reported to the credit bureaus, and in fact, after several months of regular payments, her credit history would start to improve.
If Kate Can Do It, Anyone Can
Of course, not everyone’s story will be the same as my friend’s. Everyone’s circumstances are different, and all credit card issuers have different policies. However, the valuable lesson to take away from Kate’s story is that credit card issuers do usually want to work with their customers to help them get back on track and pay off their debt.
Don’t be afraid to pick up the phone and just talk to your credit card company. The voice on the other end of the phone belongs to a person who may have been in a similar situation, or who is eager to help you. Be polite but firm, patient but persistent, and you might be surprised what you are offered.
Picking up the phone saved Kate almost $10,000, and gave her priceless peace of mind.
How much could you save?