The Backstory: Cyber Monday and credit cards

While today’s column on the Washington Times Community about credit cards was made up, the facts and figures are true and come from several sources including the Federal Reserve, Pew Research and IBM. Also true, and something that few consumers know about, is that card companies do have something similar to the “hardship department” that negotiates settlements on overdue payments.

ibk158tsFaced with rising defaults on loans, banks and credit card issuers beefed up their “hardship” policies after the economy tanked in 2008. If a consumer calls in and says they can’t make the regular monthly payments, a lender may cut the interest rate, reduce the minimum amount due or even suspend the card and agree to a negotiated monthly payment at special rates. Of course all this goes against your credit score, making it hard to get credit somewhere else.

In some ways debt is not necessarily a bad thing and keeps our economy alive.┬áIf consumers could not get credit they would have to defer or save up over time for large ticket items like cars, appliances and electronics. At the government level, debt allows us to buy that new aircraft carrier and, in some cases, put the risk of default on an outside lender like China. There has been a lot of speculation about what would happen to the US if China decides to call in its debts, but if the US defaults then China is the one out the cash, not us. It’s not quite that simple but that’s the general idea.

Debt allows us to possess goods and services beyond our ability to pay in cash, which stimulates overall economic activity, and defers the risk off the manufacturers and retailers and onto the financiers. The bankers will extract their proverbial pound of flesh for assuming your debt risk, but for the most part the system works unless the big boys mess with it as happened with the bank crisis.

If you have lost your job or suddenly can’t work for health reasons, you can negotiate your credit card debt with the issuer. Among the big three (MasterCard, Visa and Discover), Discover seems to have the least flexible terms and that’s why I picked on them for the column. However, all of them will negotiate some kind of temporary arrangement if you find yourself in trouble. Also, if you should happen to come into some cash you might be able to negotiate a final payoff for a reduced amount of the total due. The standard settlement usually runs around 20% off the total due if you can pay in cash and settle the debt completely. The best time to try that is end of year when companies want to close their books and get outstanding debts written off.

It’s far too easy to get into trouble with a credit card, but there are times you just can’t avoid using one. Just remember, there is a price to pay for the convenience.

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