Financial and Money Matters: What Credit Card Companies Won't Tell You

She was doing everything she was supposed to be doing---buying here and there only what was needed, paying towards the account, as well as paying extra each month whenever she could.

One day, she found herself in dire straights. And that's the point. It can happen to anyone.

Her interest rates ranged from 3.99-5.99 percent, hardly exorbitant, and she paid a $300 monthly minimum. None of this seems out of the ordinary, but the young woman found herself in a very extraordinary situation. She had a rock-bottom interest rate, a quite do-able minimum payment---and she found herself at the end of one month with two choices: cashing in her IRA which was worth about half of what it was worth just a few years prior, or looking for a loan shark. Neither scenario seemed appealing.

How could someone who did all the right things end up in a position that was so wrong? It all revolved around the new credit card legislation enacted by Congress in May, 2009, the bulk of which has gone into effect in February, 2010.

So many people were defaulting on their credit cards, given away by the companies like tap water, the companies were raising interest rates. Congress stepped in to protect customers who were not going into default but who needed protection from the credit card companies as they tried to make up for the losses of some wayward customers.

One of the provisions of the new law is that credit card companies could not raise their interest rates. So, to beat the law to the punch, many credit card companies launched pre-emptive strikes. Rather than increase interest rates just before the law took effect and look like bad guys, they changed their minimum monthly payment requirements. That is, instead of requiring a customer to pay 1-2 percent of the debt each month, they wanted 4-5 percent payments each month.

The Baltimore native found out about this change when in the mail she received a fine- print, almost unreadable, brochure outlining the plan. According to the new plan, the woman's minimum monthly payment on just the one card would more than double.

To make matters worse, she had more than one card to deal with. Like many of us, she was just scraping by financially, and had no hope of paying more each month. She was frantic.

With her financial papers strewn about her on her floor at home, trying to decide what she could sell to come up with the money, she went for what is known as a "Hail Mary" play in football. She called the credit card company, prepared to throw herself at their mercy. She wanted to see if she could work out a deal that would make both of them happy. It worked.

It'll work for you, too, given you meet the requirements. The main requirement is that you have an ability to pay the company back and the fact that you won't miss a payment.

This is not for people who are in over their heads and have no hope of repaying spiraling, out of control credit card debt or those who are on the verge of bankruptcy. It's for people who have been good customers but for whom the rug has been pulled out from under them, metaphorically speaking.

Take these steps:

---Get over the shock.

---Call customer service and explain, briefly, your situation. You'll be transferred to a specific agency or division the credit card company uses just for hardship cases.

---Explain your problem to the person who will then read a bunch of disclaimers that most likely won't apply to you. Just let him read it. It's his job.

---You'll be asked how much you bring home in a month, if you have other fixed loans (mortgage, for example), if you have other credit cards and what your typical payments are, and any other big payments.

---Don't be afraid of the multitude of questions you'll be asked. The company needs to be sure you have the ability and willingness to repay the debt. In this woman's case, the loan advisor could see that not only did the woman pay the minimum on time each month, but whenever she had a few dollars left over, she applied it to the principal of the card to reduce the amount owed.

With so many people overwhelmed by massive credit card debt and refusing to pay, this woman is exactly the kind of person the credit department wants to work with to come up with some sort of reasonable payment plan to clear the debt.

No Long-term Adverse Affects

---Ultimately, the hardship department may convert the credit card to a fixed, loan account. Your card is closed, and you can never use it again. For most, that's hardly a bad thing since that's how they found themselves in the predicament to begin with. On your credit report, the account will be listed as "card closed" or "card closed at customer's request."

The Good News

---You will have a set interest rate, set payments each month, and it will be paid off within a reasonable amount of time. In the case of the Baltimore woman who sought only to maintain her $300 monthly payment, her interest rate was reduced to 2 percent so that her $13,000 credit card debt (now a fixed loan) would be repaid over a period of 5 years at $244 a month. That's $46 less than she had been paying previously.

---Here's a critical point. The fact that you've closed the credit account and changed it to a fixed rate account, your credit rating should never be affected. The credit card representative explained to the woman that it would be listed on her account simply that she had chosen to close the account. Make sure you ask your credit representative how it will affect your credit account.
---Make sure it is in writing at some point. It is noted in your credit report that the account was changed to a fixed account, not that you stopped paying or missed payments. You will not have a black mark on you credit report so long as you continue to hold up your end of the payment bargain.

---You will be told the particulars of the repayment. In the case of the Baltimore woman, she has been paying around $300 a month, which she told them was do-able, and in fact, she paid extra whenever she got the chance because she really wanted to be rid of the bill. The new fixed plan, with its 2 percent (yes, read that again, 2 percent) interest rate called for the woman to make payments of $244 a month for five years. That's less than she was paying originally! When she called, she was only hoping to keep her minimum down to something manageable. The rest was a bonus.

---The company will ask for your bank account information. Your first few payments will be taken directly out of your checking account. In the meantime, you'll get a written packet in the mail, detailing the information in writing, and you can then switch to paying by mail or through online banking.

---You pick your payment date for future payments.

---Most important. You must continue to make the payments as you have promised.

---If you miss a payment, are late for a payment, or in any way go back on the new plan, you will be thrown out of the program. All bets are off. As it is now a fixed loan, you will be liable for the entire amount immediately.

---Don't let that scare you. You called because you wanted to get a better deal, right? You are not out to cheat anyone, so you are fine.

---The card representative will go over all the terms you've agreed to yet again.

---You will receive a copy of terms you've agreed to by mail. If there are any problems or things you don't understand, call and ask for clarification.

Once all the legal wrangling is over, you have one last step: Thank the person. Yes, it's his/her job, but when you made that phone call your stomach was probably doing cartwheels, and this person helped you. Let him know how much you appreciate the help. You'll both feel better.

Was that phone call worth it? The Baltimore woman had to swallow her pride a bit, but the calm, rational voice at the other end of the telephone line took any doubt that she had made the right decision away immediately. One phone call can bring you an enormous amount of peace. If you are in that situation, always make the phone call.