Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006).
Dear To Her Credit,
My husband was in an accident this past January. Between the medical bills and the missed work, we can't make our $400 monthly payment on one of our credit card accounts. All our other creditors are working with us.
We are doing everything possible to stay in good standing, but they won't let us talk to a hardship program representative until we miss a payment. If we miss a payment they will increase the rate to 25 to 30 percent. Then what? Please advise who we can call to get something resolved fast. -- Audrey
Dear Audrey,
I hear this complaint a lot. Experts often advise people to call their creditors at the first sign of trouble, but when they do, they often are told to come back after they've missed a payment. If you're trying not to miss a payment, that seems like a Catch-22!
Try to look at it from the credit card company's perspective, however. Everyone wants a lower rate, and many people would like lower minimum payments. A good share of the banks' customers would even like their balances reduced. How should the bank decide who gets special treatment?
"Lenders feel that if they allow anyone who calls them into a hardship program, these programs would be widely abused," says Sam Davidson, customer service manager at Bills.com. "The banks know that some people truly do need assistance, though, so in order to prevent abuse, they require that for a cardholder to be eligible for a hardship program, the customer must already be unable to make her minimum payments."
Hardship programs are not designed to ease the burden on a cardholder who can make payments, even if doing so is difficult.
-- Sam Davidson
Bills.com
If you've been making your payments, regardless of how difficult it is or what other bills you may have had to put off, from the bank's point of view you really can afford the payments.
"By missing payments, she would likely become eligible for the hardship program," says Davidson. "On the other hand, if they continue to make the payments because they are worried about the interest rate increasing on the account, then, the bank would argue, they can afford to make the payments and are not really in need of assistance. Hardship programs are not designed to ease the burden on a cardholder who can make payments, even if doing so is difficult. These programs are designed for those customers who really cannot afford their payments, regardless of the consequences of nonpayment. I know this sounds harsh, but credit card companies do not want to make entering into a hardship program a painless process."
Your best bet is to look at other options, such as making drastic changes to your budget or lifestyle, so you can get through this difficult time without ruining your credit history. If your medical and consumer debt together are more than two or three times your annual income, that may not be possible and you may need to look at bankruptcy. Otherwise, perhaps you can find a lower interest loan, borrow from a relative or sell something.
If you still cannot make your payments, you will miss a payment soon enough. Your interest rate will go up, unfortunately, but so will your chances of working something out with the bank. If you find that you can make the payments, even with great difficulty each month, so much the better. By keeping the interest rate low, you can pay your balance off more quickly.
Disability insurance would have been a big help at a time like this. Disability is probably the most neglected area of insurance for most people. We insure our cars and our houses, but not our most valuable financial asset -- our ability to work!
It may seem impossible now, when you are struggling to make minimum payments, but other people have been in the same predicament and worked their way out. I hope your husband is completely recovered from his accident and you can work toward becoming debt free soon.
Sally Herigstad answers questions about credit every week for CreditCards.com. Herigstad is a certified public accountant, author and speaker. She also writes regularly for MSN Money, Interest.com, Bankrate.com and RedPlum.com, and has been a guest on Martha Stewart radio and other programs. You can read more about personal finance and download free budgeting worksheets at her website: www.sallyherigstad.com
To Her Credit answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to Sally.
Published: August 28, 2009
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