Issue Date: September 20, 2009
Coping with high card balances?
It's a vicious cycle. Our contributing editor takes a look at ways to avoid falling further into debt.
By Sharon Epperson
Having problems with credit? Ask the card issuer about hardship programs.
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A note from a Florida reader, who says she finds herself in a "vicious and most difficult" cycle with her creditors, recently caught my attention. Despite the passage of sweeping new credit card reforms that President Obama signed into law in May, this reader still could find herself in deep trouble.
Facing high credit card balances, the reader has tried to negotiate with card issuers for lower rates -- without success. Meanwhile, the minimum amount due on these cards each month is rapidly increasing. The result: She's falling deeper into debt.
Fortunately, the new credit card law, which will be completely phased in by next summer, prohibits random retroactive interest rate increases, although rates can rise if your payments are at least 60 days late. But it does not prevent card issuers from raising minimum payment requirements.
"You never know when your credit card company is going to tell you your minimum required payment will go from, say, 2% to 5% of outstanding balances," says John Ulzheimer of Credit.com. If you pay late, your rate will increase further, and the account may go to collections or default.
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So what do you do?
Pay on time
Make every effort to meet your payment deadline. And don't go over your credit limit. Under the new law, "card issuers can still change the rate on your existing balance if you become 60 days delinquent," says Greg McBride of Bankrate.com. "And they can change the rate on future purchases by giving you 45 days' notice."
Ask the company for help
Call your card issuer and inquire about its hardship programs. It's worth asking about an agreement that lets you set up a payment plan, reduce your interest rate or even lower your monthly payment. "Lay it all out there," says Curtis Arnold of CardRatings.com. "Say you want to honor your debt, and ask what they can do." The higher your credit score, the better your case, so always try to make timely payments.
Ask a counselor for help
Contact a legitimate credit counselor at a non-profit agency. Find one through the National Foundation for Credit Counseling at debtadvice.org. A counselor may help you negotiate a lower rate, get late fees dropped or enroll you in a debt management plan to give you manageable monthly installments.
Boost your income
You'll likely need to make more money to make more than the minimum payment. To do that, take on a part-time job, or hold a tag sale or sell gently used items online or via your newspaper's classifieds. Working a few extra hours or selling your old clothes, household goods and jewelry can help you pay off your debts that much faster.
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