Yesterday (6-25-2009) I got a notice saying my “minimum” monthly payment was going from 2% to 5%. That means my payment of $345.00 will start to be $810.00 in August. I will not be able to afford that. Mind you, I always pay my bills, don’t get late payment charges and the last time I checked, my credit score was like 797. Yes! I’m having financial troubles and am just barely holding on. This will send me over the edge – especially if my other credit cards follow this one. … HELP!

This is probably a common refrain across the nation right now. And, sadly, this new rule is aimed exactly at folks like Lisa. Chase will keep your minimum payment at 2%, if you agree to allow the company to raise your interest rate. The most common recipients of this change to credit card terms are those with low introductory rates of between 2.9% and 5.9%. You can see where this is going. The higher interest rate means Chase gets more money, and allowing you to keep the lower minimum means that you make payments for longer — meaning Chase gets more money. The way I see it (and every situation is different), there are three options here:

Option #1: Suck it up and make the new minimum payment

If you don’t agree to the higher interest rate (and keeping the current minimum payment), you will have to make the new payment. Since you have about a month, now is the time to do some serious surgery on your personal finances. Look over your budget and see where you can make cuts. This may include cuts to entertainment, cell phones, eating out and other negotiable expenses. (Note: Your housing payment, especially if you have a mortgage, is not negotiable. Always make sure this is paid.) Figure out which expenses you can cut and get it so you can make the new minimum payment. It’s not pleasant, but in the long run, you will save money in interest and pay off your debt faster.

Unfortunately, many people do not have the option to cut back so dramatically. The current economic conditions mean that some folks, due to cutbacks or layoffs at work, do not have the ability absorb an increase of the magnitude proposed. In such cases, you might go with:

Option #2: New loan

In some cases, it might be wise to get a new loan to cover the amount of what you owe. Pay off the credit card, and move on. Of course, you still have a loan. You might try switching to a different credit card with an introductory rate of between 0% and 3.99%. You could also consider getting a debt consolidation loan from somewhere. If you have reasonably good credit, you might be able to get a personal loan with an interest rate of between 7% and 12% from your bank or credit union. (While this is higher than your intro rate, it is likely to be a lower rate than what the credit card will offer you in exchange for keeping the minimum low.)

Another possibility is to use P2P lending, such as Prosper or Lending Club to help you lower your payments. In any case, though, I would think twice (or thrice) about using a home equity loan to secure your credit card payment. Do that last.

Option #3: Debt settlement or bankruptcy

If nothing seems to be working at all, you can reach for the final tool of desperation in these cases: Debt settlement or bankruptcy. You can usually reach settlement for unsecured debt, allowing you to pay less than you currently owe on your credit card. As an extreme last resort, bankruptcy can help lower your payments to something affordable (even though in recent years bankruptcy laws rarely allow you to walk away). In both cases, your credit will be shot, so it is not a decision to be taken lightly.

What will you do if your credit card minimum is raised?

image source: daylife

Disclaimer: I am not a financial professional. Any information you get from this site is not intended as advice. It is likely to be incomplete, and it may not apply to your individual circumstance. Do your own research, consider your situation and/or consult a professional before making money decisions.

Post from: EveryJoe

What to do When Your Minimum is Raised

Credit card debt settlemtent made easy

It has always been possible to employ debt settlement as a method of getting rid of unsecured debt. However, the process has long been fraught with complications and strenuous negotiations. Not so much anymore. CNBC offers an example of what happened when one customer asked to settle his credit card account:

Mr. McClelland’s credit card company was calling yet again, wondering when it could expect the next installment on his delinquent account. He proposed paying half of his $5,486 balance and calling the matter even.

It’s a deal, the account representative immediately said, not even bothering to check with a supervisor.

As they confront unprecedented numbers of troubled customers, credit card companies are increasingly doing something they have historically scorned: settling delinquent accounts for substantially less than the amount owed.

Clearly, the economy is forcing credit card companies to consider their options. With delinquencies and late payments on the rise, it is often easier to collect whatever the customer can offer than to try to collect on a debt that the consumer may not be able to pay. With unemployment and the threat of foreclosure forcing people to prioritize their obligations (your mortgage payment should come first), it is becoming a necessity to accept a debt settlement.

Even though you are getting a good deal with the debt settlement, it is worth noting that by the time you get to this point, you have likely paid more than you originally borrowed — and then some — due to the high rate of interest. Credit card companies may not get their entire interest earnings from you, but they’ve probably already made their profit. And, you should also realize that your credit score may be impacted.

Image source: Daylife

Post from: EveryJoe

Credit Card Bailout for Consumers?

Rise Above Debt Relief has a different approach. Recently, I spoke with Jeff Boulton, CEO of the company, about his approach to debt management.

“We really take a counseling approach to debt relief,” Boulton said. “We help people pay their creditors, as well as help them set up a savings plan. And we counsel with them to help them build a solid financial foundation.”

The other thing I really like about Rise Above Debt Relief is that the program actually says no to some people. “We actually turn a lot of people away,” Boulton explained. “because debt settlement isn’t for everyone. Some people would do better with another approach. We talk to potential clients, and if there is another service, or if they could do it themselves with a debt snowball, we tell them how to do that instead — at no cost to them.”

“We are really rigorous about the people we accept into the program,” Boulton continued, “We view this as the last option before bankruptcy.”

Of course, this debt negotiation program has a fee, but Boulton is up front about it. “It’s a 13 percent flat fee, based on total debt entered into the program.” But he also pointed out that in many cases, borrowers pay much more than that when they struggle to pay interest.

Additionally, Rise Above Debt Relief offers financial counseling and free budgeting software. “We want to help people move on from their debt and start building wealth,” Boulton said.

Right now, debt settlement is all that is offered by Rise Above Debt Relief, but Boulton hopes to offer other debt management services soon. But, for now, his company remains one of the best debt negotiation programs I have seen.

“It comes down to education,” Boulton explained. “Get people on a budget, and get them away from living off credit cards. And with Rise Above Debt Relief, anybody can call in and get sound advice and not be pushed into something they aren’t going to need.”

Disclosure: I have not been paid by Rise Above Debt Relief. I am impressed, however, by Jeff Boulton and his ideas. I have not tried the company’s services, but they appear to be sound and helpful for those in serious debt.

Post from: EveryJoe

A New Kind of Debt Negotiation? Rise Above Debt Relief