If Credit Card Relief Is Banned, See Debt Management

Melissa Lambarena

As cardholders struggle financially due to COVID-19, some credit card issuers are promoting their hardship programs.

Once a well-kept secret, these programs are now advertised more prominently, offering things like deferred payments and lower interest rates. But not all cardholders will be eligible or enjoy favorable terms.

If you’ve been denied COVID-19 help, it’s insufficient, or your terms of help are expiring, consider turning to a nonprofit credit counseling agency. Credit counselors may be able to help you with debt relief options, possibly including a debt management plan, which consolidates multiple balances into one payment at a lower interest rate.

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“It basically works like a consolidation loan without creating a new loan,” says Thomas Nitzsche, spokesperson for Money Management International, a nonprofit credit counseling agency.

Here’s what you need to know about this type of assistance.

Hardship Programs vs. Debt Management Plans

Credit card assistance programs are ideal for balances that can be paid off in a few months. Requirements vary from issuer to issuer and relief is generally granted on a case-by-case basis. To determine your eligibility, you must contact your card issuer.

Debt management plans are best suited for long-term debts that can take up to five years to pay off. They consolidate different balances like unsecured loans, certain types of medical debt and credit cards into one payment at a fixed rate, according to Nitzsche.

You wouldn’t go directly through your card issuer for such a plan, but a third-party credit counseling agency can suggest it to you, if you qualify, and set it up with the issuer. Credit history is not an eligibility factor, but you generally need regular income to show that you can make payments that meet the terms of the plan. A missed payment can dissolve a debt management plan.

There are also usually fees associated with a debt management plan, which can vary depending on factors such as where you live. But the fees can be negotiable and your savings will usually outweigh the cost.

“I no longer need to talk to creditors”

Unlike a hardship program, a debt management plan can also save you time. For Helen Kerins, a New Jersey-based YouTuber on the Krazy Kerins channel, the best part was letting the credit counseling agency negotiate with the issuers. “I no longer need to talk to creditors,” she says.

Kerins, 42, had already used a debt management plan in her 20s to pay off her creditors, but she admits her habits didn’t completely change after that. In 2016, however, her priorities were different as a wife and a new mom, and she was determined to tackle nearly $44,000 in debt.

She contacted a credit counselor and submitted credit card statements, account numbers, contact details and other details. Together they discussed her options over the phone and determined that a debt management plan was appropriate. (Credit counselors may offer other options or resources for budgets in the red.)

After the agency contacted Kerins’ credit card issuers, it got a significant reduction in interest, and its monthly outlay on this debt also dropped sharply.

Before, “I was paying around $700 or $800 a month just with my credit cards,” says Kerins. The debt management plan brought that figure down to about $475 per month in total, and that included the $25 monthly service fee charged by the counseling service.

It is possible to combine rescue options

If, for example, only some of your creditors offer you hardship relief directly, you could potentially enroll the other accounts in a debt management plan.

“The [debt management plan] is quite flexible,” says Nitzsche. “You can add or remove creditors at any time for any reason.”

Likewise, even if you have already been enrolled or declined for a hardship plan, this generally does not prevent issuers from offering affordable terms through a debt management plan. Spokespersons for American Express and Wells Fargo, for example, have confirmed that these issuers are willing to work with these cardholders.

With either type of plan, you may need to stop using your credit cards. Your transmitter can even close them. But even then, you may have other options.

In Kerins’ case, monthly payments were automatically debited from her bank account and she reduced her debt from nearly $44,000 to $10,000. Her husband then used his own good credit to qualify for credit card balance transfer offers, and she transferred her balance to those cards to save more money and speed up debt repayment.

It finished repaying this debt in full in December 2019.

This article was written by NerdWallet and was originally published by The Associated Press.

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