A new deal between the nation’s best credit counselors and the biggest credit card companies could help more borrowers repay their debts.
The credit card companies have agreed to accept smaller payments, over a longer period of time, when members of the National Foundation for Credit Counseling negotiate repayment plans on behalf of struggling cardholders.
When borrowers who’ve fallen behind on their credit card payments seek help, credit counselors often work out what’s called a debt management plan.
The card companies usually agree to forgive about half of the debt if the customer will repay the rest in monthly payments that cover about 3% of the new balance.
But last year the NFCC found it couldn’t help 400,000 clients because they owed so much it was impossible to negotiate a debt management plan they could afford.
You just know that the next stop for many of those borrowers was bankruptcy court.
To fix that, the NFCC worked out two new debt repayment plans designed to help maxed-out consumers reach a deal with the 10 largest credit card issuers — American Express, Bank of America, Capital One, JPMorgan Chase, Citigroup, Discover Financial Services, GE Money, HSBC, U.S. Bank and Wells Fargo.
They will allow cardholders to stretch the payments out longer, so they can repay only 2% or 1.75% of the initial debt each month.
Now a consumer who agrees to repay $24,000 through a debt management plan could qualify for monthly payments as low as $420, rather than $720.
Of course the credit card companies have the right to review a customer’s finances and determine how quickly they can afford to repay their balance and who will be allowed to take advantage of the new, lower payments.
But if they’ll be reasonable, this could not only help consumers, but cut the credit card companies losses.
(Here’s how to find an NFCC member agency near you.)