Can't pay? Don't know what to say? Here's a 4-step plan

If credit card debt exceeds ability to pay, don't hide. You have options

Erica Sandberg
Personal Finance Writer
Consumer finance expert, author and “Opening Credits” columnist.

Reached the end of your rope with credit card debt? To avoid the serious credit and financial damage not paying as agreed causes, you must speak with your creditors. Soon.

The question is: Do you know what to say? 

If you can't pay and don't know what to say, here's a four-step plan.

1. Clarify your money picture.

Lenders aren't fond of approximates, so arm yourself with precise figures and timelines before calling.

First, develop a cash flow statement. List each of your essential monthly expenses and subtract the total from your income. Then, decide who gets what portion of the remainder. In general, secured obligations such as mortgages and vehicle loans receive top priority, as home and car lenders don't have to take you to court and win a lawsuit to collect what's owed. After those are covered, divvy the leftover sum among your credit card companies.

What to say when you can't pay

Now consider when you'll be able to restart normal account activity. Be conservative. If you've been laid off and think you'll find another job in three months, assume it will take five. 

Analyzing your finances and staying true to your capabilities is essential, says Leigh Ann Fraley, who repaid $19,947 in credit card debt.

"I went through my budget, so I knew what I had and could adjust. I would tell them that instead of paying $100, I can send $5 but I can do it every month."

Though she was apprehensive about making those calls, she often found creditors to be "great; very understanding."

As you're going through the numbers, try not to get discouraged. Overall, lenders are eager to help borrowers in need. Bank of America, for example, has accelerated efforts to reach out to customers early in the delinquency cycle, before their situation becomes too distressed.

"We recommend that they contact the bank so we can evaluate their individual situation and propose the appropriate, customized solution," says Bank of America spokeswoman Betty Riess. The bank (along with hundreds of other banks) also works with credit counseling agencies that counsel, educate and develop restructured debt payment plans for customers who are experiencing financial stress.

What if you've got nothing to offer and don't expect a recovery anytime soon? Understand the worst-case scenario before giving up.

"If you don't pay your bills, your creditors will likely take collection action of increasing severity over time," warns Jeannine Moore, director of marketing and communications at Consumer Credit Counseling Service of San Francisco.

"The end result could be a legal judgment in which the creditor gets the right to garnish your wages, place a lien on your personal property or levy your assets." 

To prevent it from descending to that level, Moore suggests examining all possibilities, such as securing part-time work to boost your income or selling assets to drum up the cash to make payments.

“If you don't pay your bills, your creditors will likely take collection action of increasing severity over time.”

2. Write a 'problem and solution' script.

The people you'll be speaking with aren't mind readers; it's up to you to explain what happened and how you'd like to fix the problem. Arrange your thoughts by putting your situation and requests in writing:

  • Summarize the problem.
    Be brief and focused. A rant about your hard times isn't relevant, but the fact that you were unexpectedly laid off from your car sales job is. Also list specific actions you're taking to remedy the setback.

  • Propose a solution.
    Never make a creditor guess what will work for you -- formulate a plan based on your unique hardship instead. Example: "The $197 minimum payment isn't possible right now, but I've reviewed my budget and cut my spending, and I can pay $45 for the next three months. Starting in June, when I'll be back at work, I can pay as normal again." (Be aware that charging privileges are usually suspended during a reduced payment arrangement, so prepare to pay for everything with cash.)

  • Establish credibility with proof.
    Note that you'll be following up the conversation with a letter and supporting documentation, such as a disability benefits statement, a budget worksheet, or other paperwork that backs the validity of your claim.

  • Request special help.
    Is there anything else you want during this time? Many banks, including Bank of America, are willing to waive or cease fees and reduce interest and monthly payment programs. You may also request that they report your activity as timely to the credit bureaus. If they don't offer, ask. They can only say no.

  • Extol your virtues.
    If you've been with your card issuer for many years, have always paid your bills on time, and kept your debt manageable, jot that down, too. Your history of past payment practices matters, so get ready to lead your own cheers.
“Make your tone sound like a request, not a demand. Good rapport is vital; you want to solicit cooperation.”

3. Pick up the phone and call.

When you reach the customer service representative, don't launch into your well-planned conversation just yet -- make sure that person has the authority to approve any changes to your account.

Lynnette Khalfani Cox, author of "Zero Debt: The Ultimate Guide to Financial Freedom," recommends customers ask, "Do you have the power to change my interest rate or terms?" If the answer is affirmative, start talking. If it's no (or that no one does), ask to be transferred to the boss.

"Make your tone sound like a request, not a demand. Good rapport is vital; you want to solicit cooperation," says Cox.

Also identify the person, not just the department, to whom you'll be sending your follow-up letter. If you encounter resistance, either search for management names on the company's website or politely explain that you'll copy all correspondence to the CEO. 

Once you have the right employee on the line, pull out your notes and begin.

  • Maintain a two-way conversation.
    After making your proposal, confirm that it's mutually acceptable. If it's not, be ready to negotiate a plan that does work for both you and your creditor. This process takes two (or more) participants, so don't just talk, listen.

  • Stick to the truth.
    Creditors have heard every excuse, so resist telling tales. A dramatic sob story will not increase your odds of getting a break. "I made a mistake" is fine; "The dog ate my statement" is not.

  • Keep your composure.
    It's easy to get aggravated, but yelling, threatening and crying are rarely effective. Remain calm and reasonable. After all, that's what you would expect from card issuer, right? And while there's no need to be saccharine, a sincere "Thank you; I genuinely appreciate your help" is always appropriate.

Still, these are not always easy conversations to begin, especially if your confidence has been shaken.

"It's difficult to talk to your creditors when you feel badly about yourself. I had to tell myself that I'm not a bad person," recalls Fraley. "When I got past that and began to communicate, things got a lot better." She also suggests employing an ally. "Have a friend sit with you while you make the call. It helps you not fall apart."

4. Follow up with a letter and keep in touch.

You promised a letter with documentation -- now write and send it. Include your full name and account number, and address it to the correct employee or department. In concise paragraphs, recap your situation, the agreed-upon resolution, and a statement of how you are committed to keeping the account in good standing. Don't forget to add your telephone number and email address, so your card issuer can easily contact you. Make copies of the letter and any paperwork, then head to the post office to send the entire package via certified mail, return receipt requested.

"Stay organized and maintain regular contact," urges financial planner Ken Clark, author of "The Complete Idiot's Guide to Getting Out of Debt." "You'll avoid the immensely frustrating situation of having to re-explain your situation, much less start from scratch if the ball gets dropped." Periodic updates also reassure creditors that you're doing everything possible to get back on track.

Finally, know that early intervention is best, as your options for resolution are wide open. Ignore the urge to delay that first phone call. The fact is, even when you're in a financial bind, you are a valued customer, and most creditors will do what it takes to assist you through this tough time.

See related:  Ignoring credit card debt can lead to garnished wages, Take these steps to avoid wage garnishment, Wage garnishment rules of engagement


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Updated: 12-16-2017