Millions of people in credit card debt are getting their terms changed—sometimes meaning they pay no interest—simply by asking.
What it comes down to is that if a bank senses that it is unlikely for a customer to pay off his or her debt, the bank is open to negotiation, hoping to get something rather than nothing. The Washington Post gives an example:
John Fullmer of Annapolis was one customer in need of help, after racking up thousands of dollars in card debt to start a mental health consulting business a couple of years ago. It seemed manageable until the interest rates on two of his credit cards soared past 20 percent. “I’m paying so much interest, I can’t pay down the principal,” Fullmer said.
Several weeks ago, he called Citi and Chase to plead for lower interest rates. Both companies agreed to a 6 percent rate — but only if he closed the account. He did not accept right away as he contemplated how it would affect his credit score. Modifications on credit card accounts can damage a borrower’s credit history several ways.
Shortly after, a Citi representative called to offer him a zero percent rate for 12 months — again, if he agreed to give up the cards. This time, he accepted immediately. “They just said they wanted to work with me,” he said.
About three million credit card customers had their terms modified last year, and even more cardholders are expected to get help during this year of mass unemployment. As one blogger proved in her year-long experiment of requesting a discount every day, it’s often beneficial to take the simple step of asking for a break.
But getting your credit card terms adjusted is not a get-out-of-debt-free card. You must still pay off the principal, you have to hand over your credit card, and your credit history may be a mess. From the Washington Post story:
Forgiven debt could be taxable and can tarnish the borrower’s credit report for up to seven years. If the bank reports to credit bureaus that it forced the borrower to close the account, that, too, could damage the credit history, jeopardizing chances for future loans. Finally, if a borrower has a lot of debt, a closed account could hurt a credit score. If the borrower has to give up his card, then a key figure used by lenders to determine creditworthiness — the ratio of outstanding debt to available credit — can soar, harming the credit score even further
.
Still confused about credit scores? Me too. Read more about what they mean, what they don’t, and how get a better one. And then, if you don’t mind, explain it to me.