Maximize Your Credit Card Payment and Improve Your Credit Score

2 years ago I was over $100,000 in debt to credit card companies and had just watched as most of them raised my interest rates into the 20%+ brackets. My credit score was in the high 500's. I was faced with what I though were only a couple of choices. One was to file bankruptcy and possibly lose my home and possessions and face public humiliation. The other was to sign up with one of the companies offering to settle the debt for a fraction of the total. I didn't want to file for bankruptcy and I knew that anything offered that sounds as good as "settle your credit card debt for less than 30% of what you owe", was probably too good to be true. So where was I to turn?

This debt had been accumulated over a long period of time. I just kept thinking something would change in my life and I would be able to get ahead of it. I was making the payments, but only the minimums. Just making minimum payments is a negative for your credit score but I will discuss the credit score in a bit. When the companies all decided to raise my interest levels up to the 25.9% or 29.9% maximums allowed by the card agreements, I was finished. I knew that there was no possibility of ever getting ahead of the debt at that rate of interest. Well there was the lottery, but you have to buy a ticket to win and I couldn't afford it.

I decided to contact the companies offering to negotiate the debt. As I said bankruptcy was not what I wanted to do. I learned that their program required you to be in default to the credit card companies for many months while you paid into an escrow account the payments you would have made to the card companies and when they felt the companies were desperate to get something, they would negotiate and keep a portion as their fee. In the meantime my credit for you hit rock bottom and would have been sometime coming back. Additionall I didn't want to harrassing calls from the collection agencies. But I didn't feel I had another option. So without choosing a program or signing any contracts, I decided to stop making payments. Payments by most companies are considered late and reported to the credit agencies after 60 days not just 30, and that is where I got lucky because i didn't know that.

At 45 days approximately, the company I owed the most to called to see if I would make a payment because I was late with the current month installment. I was rather rude on the phone with the representative and when she asked if the reason I could not make the payment was due to a hardship, I said yes, very sarcastically. Little did I know that I had just uttered the magic word. HARDSHIP!!!! Her response was first to ignore my tone (I would never want her job) and ask me if I would like to speak with their hardship department. Now this is where it gets good.

This is what the hardship department did. I was asked several questions regarding my financial situation, in essence outlining a budget to see how desperate my situation was. Nothing was checked. They accepted my word for my ability to pay. They really wanted to make this happen I guessed. So they offer to set my account up on a program that lowered my payment and reduced my interest rate. I can't remember what percentage of my previous payment the new payment was established at but it was of little concern as it was lower. My excitement came from the offer to lower my interest rate to 2%. That's right 2%. From 29.9%. Then she explained the requirements of the program. I was to agree to close the account so nothing else could be added to the debt. I was to agree that I must make a payment every 30 days and a failure to make a payment in any consecutive 60 days for result in removal from the program. I immediately agreed to the requirements of the program. I had to issue payments to bring my account up to good standing and then the program would begin. I did so with her on the phone. I then called the other companies and ask if they offer a "hardship" program and guess what? They all did. Only one company, USAA, was not willing to be as understanding and cooperative with a customer that had always paid the bill and wanted to pay back what was owed. Bank of America, Chase, American Express and Capital One all were ready to work with me to establish a program that would allow me to make my payments and lower my interest rate. All of my accounts now have a permanent rate of 5.25% or less. The program establishes that when all payments are made, the accounts will all be paid off in 60 months from the date of the program start. The reality of the situation is that with the lowered interest rate and lower minimum payments, I was able to get my feet under me again, do some hard budgeting and find not only the difference between the old and the new payments to add to the account but also a little more so I will probably complete paying off some accounts this year and the remainder in the 4th year and be debt free again. The other plus of the program is that without credit cards I learned to live within my means and the change in lifestyle will forever keep me from doing this again.

Now hear is the great news if rebuilding a credit score is important to you. Credit reporting agencies are usually not fair in their treatment of consumers but in this case their policies were very favorable. You see, the agency does not care if an account is closed as long as there is a balance owed. One of the factors used to calculate a credit score is the amount of available credit. The difference between the maximum allowable credit and the actual credit balance is the factor they look at. So closing the accounts didn't hurt my credit. One reason for this is that I asked all the companies to that the closure was at customer request. Only USAA refused to do so. They reported that they had initiated the closure even though I had contacted them. An unfair blemish on my report but, as it turns out, a minor scratch to learn which companies to do business with and which ones to avoid. My credit score is currently about 700 and rising as I pay down the balances. It will take a bit of a hit when the accounts go to zero but the lower maximum credit level will ultimately be positive when it is all finished. In this 2 year period I was able to obtain financing to purchase a car at a reasonable rate due to an improved credit score.

Programs of this type may not be for you. However, if you think you can continue to make your payments and want some relief from ridiculously high interest rates, it just might be the way to go.