Fred took a different approach to paying off his credit cards. He deliberately missed a couple of payments, then called the credit card companies and asked them to slash his balances.
Bank of America, Discover and Citibank all said yes, offering settlements from 40 to 60 cents on the dollar. No arguing, no fighting, no asking to speak to a manager.
“They gave it up before I asked,” says Fred (who asked us not to use his real name so this wouldn’t become part of his Google legacy.)
This might sound preposterous given how the credit card industry has been treating its customers since the financial crisis struck — raising interest rates, slashing credit limits and even canceling the cards of customers in good standing.
But with 6.5% of all accounts at least 30 days late, it looks like banks are quietly trying to keep the recession from turning credit card defaults into the next mortgage mess.
Debt settlement is nothing new.
Reputable credit counselors routinely negotiate “debt management plans” with the credit card companies, which writes off about half of a creditor’s debt and establishes a realistic, 36- to 60-month repayment schedule to retire the balance.
But everything we’re seeing and hearing indicates there’s a sudden willingness on the part of credit card companies to strike such deals directly with their customers.
Customer service representatives have been empowered to settle debts and we’ve even heard that some cards are calling delinquent customers and offering to cut their debt in half if they’ll pay up.
These deals usually require cardholders to pay the remaining balance immediately. At most they’re given a couple of months to come up with the money.
The banks are being cagey on exactly who qualifies for such a settlement and how much debt they’re willing to forgive. But the American Bankers Association, their trade organization, confirms the general trend.