Reader Question: Credit Card Hardship
I had an anonymous reader post a question in the comments section of another post, and I wanted to make sure that the question and answer didn’t get buried! Here’s what this reader came to me with:
Hi Stephanie–I just discovered your site through some browsing. I am currently a Senior in college and in debt. I’ve gotten to the point where ALL of my credit cards have been maxed out and is not able to keep up with the minimum payments for all of them. As a result of that, I’m on numerous hardship programs with only one working credit card while the rest are closed accounts. I’d like some advice or some input on what you think about the hardship programs. Thank you.
I don’t have a huge amount of experience with credit card hardship programs, but from what you’ve told me, it sounds like you’re actually better off than you think you are. The fact that most of your credit cards have canceled your accounts is actually good for you. This will prevent you from taking on more debt - and trust me, you’re never going to get out of this if you take on more debt!
Cut up the canceled cards, because they’re not doing you any good anymore, and cut up the one working one, as well. Ok, you might not feel you’re able to do this. I still haven’t been able to cut up my credit card, even though I know I should. But, I still don’t carry it with me. Even if you don’t cut it up, at least don’t carry it in your wallet! Find some way to not use that credit card.
In the mean time, keep making the payments that you’ve agreed to under those hardship programs. Try and pay more to each if you can, even if it’s just $1 more. Throw any extra money you have at the credit card that’s still open to try and improve your credit rating.
You’ll be graduating soon, and possibly moving and applying for apartments. This is worrisome, because your credit rating is probably shot, and rental agencies will likely do a credit check. Pull your credit report from at least one of the agencies, and also your credit score (get a free one month trial of Score Watch, just make sure you cancel it before the 30 days are up!) This will allow you to see how these credit cards have affected your score.
That’s about all I can offer you, I wish I knew more to tell you. Maybe some of the other personal finance bloggers that happen by here will have more advice to give?
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Thanks for the link.
Comment by Tight Fisted Miser — March 4, 2007 @ 1:35 pm
I don’t have personal experience, but here’s what one of my friends did.
just let them stay closed and delinquent until you have saved up some money. This took him about 4 years.
after that, sue them for $100 in the local court. He claimed that because they had sent the money to collections and both the original credit card holder and the collection agency were reportting it, it ruined his credit, he couldn’t buy a house.
Their lawyer called him up and said that was ridiculous and that he should drop the case coz he’d lose. he said his aim to keep bugging them. finally they settled for 10 cents on the dollar and got it off his credit!
Comment by Empty Spaces Inc. — March 4, 2007 @ 7:37 pm
Empty Spaces: Erm, well, I guess you could try that. But I definitely don’t recommend it, and here’s why:
- It’s a legitimate debt, so you’d probably just get hosed in court.
- On the moral side of things, this is simply escaping money that you legitimately owe. Like bankruptcy, this just raises rates for everyone, including yourself if you ever get another credit card.
- It ruins your credit, and like I said in the post, you might want to get an apartment soon. This also applies to car loans and even employment. Yes, some employers will pull your credit report during the interview process. Who wants to get denied for a job or an apartment just because they ran away from credit card debt?
Please do not abuse the legal system for this!
Comment by Stephanie — March 4, 2007 @ 7:53 pm
Once you’re in the hole, its tough to dig out. Stephanie is right to suggest you pour all your available funds into paying off the credit card.
However, you are also in a position where credit card companies believe you to be their ideal customer, one who has a lot of debt and is still paying it off.
Be on the lookout for CC deals that will allow you to transfer your debt for free at a lower rate. Another consolidation method is to check out Prosper.com.
They allow lending between individuals, and many people are there to consolidate their CC debt, at usually a lower interest rate.
But to reiterate Stephanie’s point, the only tried and true way to get out of debt, it to stop using it. Buy only what you have the cash to pay for.
Comment by Finance Guy — March 4, 2007 @ 11:10 pm
Credit Cards are actually test meters, on how one could manage his/her spending habits.
You’ll lose control once you get those cards in your hands.
Some are lucky to get credit cards with low interest rates tho’. =)
Here’s a list of credit card reviews that will sure help you find the best card with lowest interest rate.
Got credit problems already? You can check out the list of lenders who approves bad credit credit cards
Comment by dee-q — March 5, 2007 @ 12:07 pm
By being on the hardship programs, your credit scores do lower which makes it even hard to apply for any other credit cards to help consolidate the debt. With multiple late payments and over the limit credit cards, and denied credit card offers, how long do you suppose I can get approve for any other credit card offers again? I’m even skeptical about doing a credit check to get a cell phone fearing that it will get denied.
Comment by Anonymous — March 5, 2007 @ 2:43 pm
After being in a hardship program and showing committment that you are able to keep up with the payments again, can you have them open up the accounts again? My problem is that most of my accounts are closed and its hard for me to get another credit card approval.
Comment by d — March 5, 2007 @ 2:51 pm
Anon: It’s probably going to be a while before you’re approved for a low interest credit card, that’s why I didn’t mention it in the post. The best thing you can do it pull your credit report every 4 months (since you get one free from each of the 3 credit reporting agencies once a year, so pull just one of them every 4 months) and monitor your credit that way. Keep making all the payments you’ve agreed to, and in time, your credit will improve.
As far as the cell phone goes, you may have to settle for pre-paid or pay-as-you-go, which have no contracts and therefore, no credit checks.
Try and look for ways to pay down your debts as quickly as possible. I know you’re still in school, and paying attention to your studies is very, very important, but if there’s any way you can make some extra money, you might try to look into it. Do you have anything you can sell on ebay? Do you have a part-time job? If you do, can you pick up extra hours?
When you come close to paying off one of the cards, call the credit card company and tell them you have the money to completely pay it off, and ask if they’ll remove the mark from your credit report if you send them the check today (obviously, you actually have to have the money for this). It might work, it might not, but you won’t know until you ask. Do this for each card.
Comment by Stephanie — March 5, 2007 @ 3:01 pm