Thus, many credit card companies are offering some type of “forbearance” to cash-strapped card holders.
What is “forbearance?”
It isn’t forgiveness – it is a temporary reprieve from your obligations, and it comes in different shapes. One is a postponement of six months, a year, or even longer. During this time your interest will continue to acrue, but perhaps not at the steep rate that you might be looking at when you open your credit card statement today.
Another form of forbearance offers a lower minimum payment, a reduced interest rate, and/or elimination of late fees.
What the credit card companies will offer depends upon your individual situation.
While card issuers such as Chase, Bank of America, Citi, and Discover are proactively reaching out to consumers when they first begin to fall behind, credit counselors advise consumers to contact their card issuers before the problem becomes that advanced.
Many are willing to work with card holders to arrange solutions that will allow card holders to maintain their good credit standing while assuring the card issuer of eventual repayment.
During the last quarter of 2008, Citi reports accepting about 350,000 accounts into its forbearance plan, while Bank of America modified nearly 850,000 credit card loans in 2008.
While these programs are socially responsible behavior on the part of card issuers, they are done in self-interest.
Credit card loans are unsecured, so if aggressive collection action on the part of card issuers forces a consumer into bankruptcy, the card issuer is the ultimate loser. They won’t get paid at all. The debt will become a chargeoff.
According to reports, credit card chargeoffs, which stood at 5.5% during the final quarter of 2007, reached 8% during the 4th quarter of 2009 and are expected to rise to almost 9% by late 2009.
9% doesn’t sound like a lot until you consider that right now, about $4.8 trillion in credit lines are open in the U.S.
No wonder credit card issuers are reaching out to card holders – trying to keep them on track with payments, even if those payments are strung out over a longer period of time.
