Good Faith Credit Card Payments Backfire: Debt Experts Weigh In

What happens if you are trying your best to make your credit card payments, but your card issuer won’t work with you and insists you make higher payments than you can afford? Debt experts weigh in to help this reader understand her options with her credit card payments:

My daughter lost her job a little over a year ago and she was the main bread winner for our family. Since then, she, my grandson and I have been living on my Social Security and part-time job. I was unable to pay anything on my Capital One account for five months. It wasn’t consecutive. I didn’t pay for three months, then I made a couple of payments, then missed two more. I called and explained this to them in November 2010 and told them I thought I would be able to begin paying again in January 2011. The person I talked to at that time didn’t seem to have a problem with this. However, the calls began. Each time I gave the same explanation but no one seemed to have a record of what I previously said. Some of their collectors are good and some very rude, but that’s another story.

I now have made payments in January, February, March, April, May and soon June. April and May were only $50.00 payments and once again the calls have started. The account has been closed, I’m trying to pay but it is next to impossible to pay the amounts they want to bring the account to what they are calling “current.”  They want $300 for the next three (3) months, they continue to charge $39.00 late fee each month and of course, interest.

I fully intent to pay what I owe them but I can’t seem to meet what they are asking. Do I have any way to get them to quit charging the late fee and agree to a monthly payment that I can meet? Are there still such things as “good faith” payments?

“Lisa”

Any time you pay less than the minimum payment due, you’re likely to be charged late fees. And if you fall sixty days behind on your credit card, the issuer can raise the interest rate on your existing balance to a “default” interest rate which can make it that more difficult to dig out from under.

Every creditor handles delinquent accounts differently. That’s why I thought it would be helpful to run your question by experts who are “in the trenches” working with consumers in trouble. So I asked three debt negotiation experts to share their experience with Capital One, as well as their advice for your situation. They all seemed to agree on one thing: your small “good faith” payments may be backfiring on you, and preventing you from getting into a true hardship plan that would give you the relief you need.

Here’s what they had to say …

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From Alex Viecco and Charles Phelan »

Image: Steve Johnson, via Flickr.com

From Alex Viecco, New Era Debt Solutions

It is obvious that you are dealing with a legitimate financial hardship. Capital One has been notorious for increasing balances quickly, and it is easy to see why. Although you are making payments, they continue to charge $39 late fees.

I would suggest you speak to a supervisor and ask to be put on their hardship program.  If they refuse, contact a reputable credit counseling agency to see if they can assist you with that debt.  Do keep in mind you will pay a nominal fee to work through a counseling agency, but if they can take your account, they will reduce the interest rate and put you on a payment plan that you will be able to keep up with.

Our recent experience with Capital One is that they will often settle directly with consumers for roughly 50% of the amount owed, but the balances can escalate quickly.  (If you don’t pay and the account goes to collection), the third party debt buyers that may end up with the debt are far more forgiving, but keep in mind the balance will continue to grow.

If you are able to somehow come up with a lump sum of funds (to settle) you might be well served to settle the account directly with the creditor and put that headache behind you.

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From Charles Phelan at ZipDebt.com

Sorry to hear about your situation. Capital One is a difficult creditor to work with. Yes, there are still “good faith payments,” but unfortunately, this particular creditor does not respond to that approach the way others do. One of the things that consumers often don’t understand is that underpayment of a minimum required payment on a credit card debt is not a helpful or productive strategy. You’re still charged a late fee, and your interest rate can go up to the default APR, further pushing out of reach any possibility of catching up again.

If this is the only credit card account that you have, then my recommendation is to take a tougher stand with Capital One than you have been at this point. I know this will sound counter-intuitive to you, but the best approach would be to suspend payment for two to three consecutive months. By letting the account approach 90 days late, it will open up the possibility of getting onto a hardship plan where the interest rate will come down, as well as the payment. This is basically a “do it yourself” approach to setting up a debt management plan. I need to caution you that this will negatively affect your credit score. However, since the account is already in late status, the major credit damage has probably already been incurred anyway.

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From Michael Bovee and Gerri Detweiler »

From Michael Bovee at Consumer Recovery Network

Due to the stop and start of your payments and the fact that you are sending in less than the minimum, it’s a little hard to judge how delinquent Capital One considers you at this point. If you have missed three consecutive payments, ask about the availability of short- or long-term hardship plans. Hardship plans allow you to reduce the monthly payment and typically either remove or stop continuous late fees. A short-term plan would last 6 to 12 months, where a long-term one would allow lower payments for the life of the balance. You must meet the reduced payment on time—all the time—or will be removed from the program.

If you call and ask about available hardship plans and you are told you cannot qualify for one, do not get discouraged. Call again a week or two later, or ask about a hardship plan when they call you.

You can also talk to a credit counseling group to see what they may be able to do for you through a debt management plan. I would recommend speaking with an AACC member who offers repayment plans where your interest rates are reduced and penalties removed.

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My Advice

The first thing I’d suggest you do is contact a credit counseling agency to learn whether they may be able to work out a more affordable repayment plan with Capital One. This will likely be the least stressful of your options, because the counseling agency will essentially be the “middleman” between you and the issuer.

If they can’t help, then you may need to think about the advice these experts have given in terms of trying to get Capital One to put you on a hardship plan.

There’s one more thing I would like you to consider. Last week I interviewed bankruptcy attorney Jonathan Ginsberg on Talk Credit Radio. One of the things we talked about is what happens when consumers are “judgment proof.” Being judgment proof essentially means that you don’t have any assets a creditor could go after if you were sued. You can find out whether you are judgment proof by talking with a bankruptcy attorney. Given your limited income, you may be.

If you are, you may be able to use the fact that you met with a bankruptcy attorney as leverage with Capital One to get them to work with you. Or, you may be able to hire the attorney to write a letter to that effect, for a reasonable fee. If the issuer continues to play hardball with you, it may be worth it to set up a free consultation with a bankruptcy attorney to discuss this option.

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