Credit Card Issuers More Flexible When it Comes to Debt Settlement

As the recession continues, the economy slumps, and unemployment climbs, more people find they can't pay their credit card bills. Several of the nation's major banks recently reported double-digit default rates on the credit cards they issue.

If there is any good news in the higher default rates, says Teresa Shumann-Dodson, vice president of operation at PerSolvo Data Systems of Irvine, Calif., a provider of aggregated account information of consumers enrolled in debt settlement programs, it is that credit card issuers are becoming more flexible when it comes settling those debts.

"They're a lot more open-minded today than they were two years ago," she says. "They look at more options as to how to settle debt."

More Debt Settlement Companies Work Out Term Payments Vs. Lump Sum

For example, she says, in the past, consumers who chose debt settlement traditionally had to work out a plan where they agreed on a settlement amount and the consumer had to pay it in a lump sum. Over the last year or two, she says, she has seen a greater willingness among credit card issuers to accept term payments--where borrowers can make monthly or quarterly payments to the creditor through debt settlement firms.

As many of a third of credit card debt settlement payments now are handled through installment payments, she says.

"There's definitely more term payments being worked out," agrees Joanne Garneau, president and CEO of Nationwide Support Services, also of Irvine, one of the largest and oldest debt settlement processing companies. "Traditionally it was a lump sum and it has slowly started to be term--nowadays, many times consumers can take as long as six months to a year to pay, where in the past they didn't do that," Garneau says.

Studies have shown that consumers are more likely to succeed in resolving their debt issues when the debt management programs they agree to are shorter in duration and have lower budgeted monthly payments. Debt settlement programs typically run 36 months or less where consumer credit counseling programs may be 60 months or more.

Debt Settlement Firms Keep on Top of Issuers Policies, Procedures

The advantage of term payments to the debt-troubled consumer, Garneau says, is that they do not have to have all the money at one time. "They can pay it out over a period of time," she says.

Schumann-Dodson believes it's not that the credit card issuers suddenly have become generous or altruistic, it is that the credit card problem has grown so large they cannot afford to be inflexible. They have to try to reduce their charge-off loans. "Banks understand that in this economy, consumers are in far worse situations than is typical and they would rather recover something than nothing," she says.

Every credit card issuer is different and has its own policies and procedures on the debt amounts it will settle and how it will settle them. "The good debt settlement firms are going to keep on top of that - they have people in house whose job that is - so that they can help the consumer the best they can," Schumann-Dodson says.

Working With Reputable Debt Settlement Firms Is Critical

The debt settlement industry's image has been tarnished by unscrupulous firms that charge excessive fees and fail to deliver on promises. However, Garneau says, if consumers work with reputable debt settlement firms and keep their commitment to their savings plan, they can resolve their debt within three years and not have to file for bankruptcy, which can have longer-term and more serious consequences. One sign that a debt settlement firm is reputable is that it is a member of an industry trade association such as The Association of Settlement Companies, of which Garneau and Schumann-Dodson are board members. And offers that appear to be too good to be true usually are.

About the Author:
Beth W. Orenstein is a freelance writer working in Eastern Pennsylvania. She writes for newspapers, lifestyle magazines and trade journals. She specializes in real estate and medical topics. She graduated magna cum laude from Tufts University in Medford, MA., with a degree in English.