The bank is not your friend. But nevertheless, many financial experts advise you to be honest with the bank to which you owe credit card debt about your financial situation. They advise trying to work out some sort of payment plan at a reduced interest rate. Here is how creditcards.com handles that advice.
You should attempt this, so when it does not work, you will have a more realistic grasp of your situation. The simple fact is a bank will never negotiate with you, if your credit card account is current. What the gentleman the this video describes is true. The bank will negotiate with you if your debt is four-six months late. But, you must be prepared to make a lump sum settlement for 30 or 40 percent of what you owe. Regrettably, most people who cannot afford to pay their credit card debt do not have any money for a lump sum settlement.
The first question to ask yourself and force yourself to answer is, “Can I afford to pay this debt?” If you are sacrificing monthly essentials – rent/mortgage, utilities, food, clothing, medical insurance, education loans — to make minimum credit card debt payments, then you obviously cannot afford to pay your unsecured credit card debt.
Then the next question should be, “What are my options, if I stop paying?” But, in your mind it is probably, “What if I receive a summons for this credit card debt I stopped paying?” Unfortunately, it is your constant worry about the answer to this last question that will cause you to make bad decisions when considering your options about what to do with this debt.
So to successfully put this debt behind you, before you start down the road of nonpayment, you need to be fully educated about the nonpayment of credit card debt. And, you need to have a plan in place for how you are going to handle the bank, debt collectors, junk debt buyers and collection attorneys.
Once your payments become late or stop, you will be turned over to the bank’s in-house collection department. Their goal is to get you current again, to convert your loan from a non-performing loan back to a performing loan, and to prevent your credit card debt for being written off as a bad debt after six months of non-payment.
Your state’s statute of limitations (SOL) for how long a creditor has to sue you for a debt (usually 3-6 years) starts counting with your first missed payment. It stops counting with any subsequent payment, and then starts from the beginning with another subsequent missed payment.
The bank’s collection department may offer to work out a payment plan. One that is heavily laden with contingent interest and penalties, so that if you miss a payment, most of the money that you paid into the plan gets eaten up by those penalties and interest. While it “saves” the credit card account for the bank, it restarts the SOL for you.
As your credit card debt gets closer to its six-month default date, the bank will probably raise the specter of legal action. The bank is not considered a debt collector by the FDCPA, so you cannot instruct them to cease all collection activities per the Fair Debt Collection Practices Act (FDCPA). Nor, can they be prevented from making threats about legal action.
They will call you more frequently as the six-month date of default approaches. If you cannot pay, it really does not matter whether you answer the phone or not.
You may hear from a third-party debt collector before the six-month default date. That usually means that you will have to deal with the debt collector and not the bank. But, if you are offered an attractive settlement, you should confirm it with the bank, and never pay the debt collector anything. When you are contacted by a debt collector, then you can use the letter in my materials to tell the debt collector, who is covered by the FDCPA, to cease all collection activities per the FDCPA.
The Consumer Finance Protection Bureau has made an effort to consider banks as debt collectors under the FDCPA. Here is a good discussion of that topic by the American Bar Association.
Once your bank is forced to declare your credit card debt a bad debt at six months of non-payment, it will stop calling your about that debt. Then its assigned debt collector will take over. At this point if you have educated yourself, you will know what to do. You can read my materials for how to deal with debt collectors, junk debt buyers and collection attorneys by accessing them here.