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Credit card forbearance programs offer reprieve from debt

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To err is human, especially when it comes to credit.

To forgive is divine, but when it comCredit card companies are granting forbearance to hard-pressed cardholders.es to your credit card company, that's probably not going to happen.

To forbear ... now, that's quite a different story.

And it's being repeated tens of thousands of times a day around the country as more and more people lose their jobs or otherwise come under financial stress during a gruesome economic crunch that has morphed from a housing crisis into a comprehensive credit crisis.

Many credit card companies are granting one or more types of "forbearance" to hard-pressed cardholders, and the numbers -- as we soon shall see -- are frighteningly impressive.

Forbearance defined
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. Or your minimum payment monthly payment might be lowered. Or your interest rate reduced. Or some fees eliminated.

It depends on your particular situation.

"We understand the many of our customers are struggling to meet their financial obligations and 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."

Proactive debtors
Many customers -- the wise ones -- don't wait for that.

Credit counselors and card issuers say that cardholders who lose their jobs, encounter medical emergencies or find themselves in other financial predicaments should contact their creditors before the situation becomes acute.

"Chase encourages consumers who are having problems repaying their debts to reach out to their creditors or a certified credit counselor for assistance and, when possible, before they fall behind on payments," said Gail Hurdis, a spokeswoman for JPMorgan Chase. "This will ensure the best possible arrangements."

One way or another, enormous numbers of cardholders are finding themselves in trouble and requesting assistance from card issuers.

Citi is offering new forbearance programs with broadened eligibility criteria, affecting accounts in earlier stages of delinquency.

-- Citi report    

Just during the last quarter of 2008, as the economy truly tanked, Citi accepted about 350,000 accounts into its forbearance programs -- most of those cardholders admitted into "long-term" programs that can feature adjustment of loan terms or balance consolidation actions.

"Citi is offering new forbearance programs with broadened eligibility criteria, affecting accounts in earlier stages of delinquency," the company reported Feb. 3, 2009, 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.

"Over the past year, we have accelerated our efforts to reach out to customers earlier in the delinquency cycle before their financial situation becomes too acute," she said.

Discover Financial Services, with 50 million Discover Card members, also is intensifying its forbearance programs and other customer assistance efforts.

"We have been very proactive in identifying and calling customers who are potentially in financial distress and also assisting those who come to us directly for help," said Matthew Towson, a Discover spokesman.

He said the company is beefing up its online and call-center operations that serve card members looking for help. 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 Chase, counselors have the option to restructure credit cards loans by reducing interest rates, suspending future late or over-limit fees and extending repayment terms, Hurdis said.

Card issuers' self interest
While all of this is socially responsible, it also serves the best interests of card issuers.

Asking for forbearance: what to do

    If you are in a financial jam and you 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 that 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 Betty Riess of Bank of America. "If customers believe they're having problems, we want to try to help them."

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 (an action that should be avoided, if possible, because it will have dire effects on your credit), the credit card company won't get paid at all.

Thus, card issuers have a profound 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, even as we speak, about $4.8 trillion in credit lines are open in this country.

Defaults on the rise
Worse, credit card defaults are rising quickly. Citi reports that its loss rate for North American cards was 8 percent during the fourth quarter of last year, a sharp increase from 5.5 percent during the same quarter of 2007. Fitch Ratings, in a report released Feb. 4, 2009, said it expects credit card chargeoff rates to soon breach 8 percent, and to climb to near 9 percent by late 2009.Chargeoffs 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.

Said Hurdis, the Chase spokeswoman: "We identify the right solution based on the nature of the customer's situation and their willingness and ability to meet restructured terms."

See related: Report: Credit card delinquencies hit record highs

Published: February 5, 2009


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