Friday, December 11, 2009

A desperate debtor's option: hardship programs

By Todd Ossenfort

The Credit Guy
'The Credit Guy,' columnist Todd Ossenfort
The Credit Guy, Todd Ossenfort, is a credit expert and answers readers' questions about credit, counseling and debt issues.

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Question for the expert

Dear Credit Guy,
I've talked recently to two different credit card consolidators and explained that my husband's second job has taken more than a $10,000 cut this year. I am not able to work. Slowly, we have gotten ourselves in a jam and are unable to pay our credit cards. The consolidator said that she would recommend a hardship program. How exactly do I go about this? I need to do something soon. -- Barbara

Answer for the expert

Dear Barbara,
You are absolutely correct that you need to act quickly. Before you do anything, however, you need to know exactly what you can afford to pay each month toward your credit card accounts. It would be counterproductive to ask for and qualify for a repayment program that you ultimately cannot afford. Once you determine a realistic monthly amount you can pay on your credit card accounts, you will then need to keep in mind that the amount must cover all accounts you currently owe. For example, if you have four credit card accounts and $400 per month to cover those accounts, you will need to be sure the repayment programs you agree to (for example, $75 per month to creditor A, $85 per month to creditor B, $140 per month to creditor C and $100 per month to creditor D) do not exceed a total of $400.

I am assuming that the credit card consolidators you talked to did a full counseling session with a full budget analysis. If they did, you called the right agency. If they didn't, call someone else. I recommend you only speak to a qualified nonprofit credit counseling agency for assistance. You can find help from a trusted agency by visiting a local office of the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling. A certified credit counselor will review your current financial situation and make recommendations based on your income and expenses. If it makes sense for you to enter into a debt management plan (DMP), your counselor will explain how the plan works and let you know any fees associated with the plan. On a DMP, you will make one payment to the credit counseling agency. The agency will then disperse the money to your card issuers. Most DMPs will have your creditors paid in full in five years or less.

Many card issuers are now more willing to work with consumers than they have been in the past. Most have what is considered a "hardship program" offered through the nonprofit credit counseling agency that allows you to pay what you owe with a lower monthly payment than your current minimum payment. Each card issuer will have varying requirements you will have to meet in order to qualify for the program. Keep in mind that you will not be able to add to the balances of any card accounts that are placed in a hardship program with your card issuer.

While coming to an agreement with all of your card issuers, you will need to pay what you can on time and as agreed. Rather than paying nothing on any of your accounts, make minimum payments in full on as many accounts as you can, and pay nothing on the others until you quickly find a lasting resolution.

Take care of your credit!