In the face of rising unemployment, it comes as no surprise that there are increasing signs that consumers are struggling to make ends meet. According to an April 2009 report by Moody’s Credit Card Index, credit card charge-offs reached an all-time high of 8.82 percent in the early part of 2009, more than 3 percent higher than just a year earlier. Moreover, credit card charge-offs are predicted to continue to rise and possibly reach double digits by the first half of 2010.
A charge-off typically happens when a credit card account hasn’t been paid for 6 months or more. A credit card charge-off is a more serious default than a delinquency, in which a consumer is anywhere from 30 days to 180 days behind on their credit card payment. In a credit card charge-off, the card issuer essentially chooses to deem the account as uncollectible and report it as “charged off” or “written off and uncollectible” to the credit bureaus.
Although it might sound that way, when a credit card debt is labeled as a charge-off, the card holder is not off the hook. The credit card company will close the account, but will continue to seek to collect the debt. Credit card companies at this point often choose to turn the debt over to a third-party collection agency, which will continue to pursue the debt, including penalty fees and interest, from the card holder.
For card issuers, charge-offs are a loss on an investment, and often a small portion of the overall balance sheet. For card holders, however, a charge-off is a serious blemish, which remains on the credit report for up to seven years, even if the debt is paid off. To get rid of a charge-off notation in your credit report, a person will either have to wait seven years until it expires, or try to negotiate with the card issuer to have it removed if the balance is paid off.
The record level of delinquencies and charge offs, however, may offer one silver lining for consumers. It is making card issuers more open to working with consumers who are experiencing hardship and have difficulty meeting their credit card payments. In the current economic environment, it simply makes good business sense to meet consumers in trouble half way and modify terms before they default on payments altogether.
Most major credit card companies are reported to have expanded their hardship program, or forbearance program as it is also called, dramatically over the past six months. Card issuers particularly seek to stem the rising tide of defaults by targeting card holders in the early stages of delinquency. Improved terms may include adjustment of loan terms, balance payment incentives, matched payments, or balance-consolidation programs. The overall aim is to match the monthly payment due to what the consumer can afford and to help accelerate the repayment of the credit card loan by reducing interest rates.
In short, for card holders finding themselves in a situation where paying the monthly credit card bill is difficult, because of unforeseen circumstances like unemployment, a medical emergency or another financial predicament, it’s more important than ever to be proactive. If you’re having trouble meeting monthly payments, contact your credit card company to try to negotiate workable terms. The earlier you take steps to shore up the damage, the better.
