debt

No government bailout on credit card debt

Steve BucciQuestionDear Debt Adviser,
Do you know of any official, government-sanctioned, consumer credit card, bailout programs? If these programs don't exist, are there legitimate services that can actually assist consumers in reducing debtwithout adverse credit score or credit report consequences? Any insight is appreciated.
-- Joe

AnswerDear Joe,
Official, government-sanctioned, consumer credit card, bailout programs? Bugs Bunny said it best when he popped out of his rabbit hole in the middle of a bull ring after missing a left turn at Albuquerque, N.M. and observed: "What a gull-a-bull!"

What you appear to be looking for is a completely free lunch and without any calories to boot! Even the free lunch at Charlie O's (my hometown tavern) happy hour requires I buy a drink to get at the food. Sorry Joe, what you are looking for doesn't exist. Here's why:

Many consumers feel that their personal finances should be eligible for a government bailout. Most of the ads you see with headlines such as, "Obama credit card bailout program" are simply misleading debt settlement company ads, using a made-up headline to get you to click or call. So, no, you will not find any government-backed, consumer bailout programs. I hope that clears up your first question.

Now, for your second question. Unfortunately, in most cases, you cannot pay less than you owe without it negatively affecting your credit. Most credit card issuers will accurately report your repayment history to the credit bureaus. If you do not pay what you owe under the terms of the loan or credit agreement, they will report your account negatively. Accurate and timely credit reports are a good way to keep our credit markets working. If lenders had no reliable way to know if you were making payments on time and as agreed, we would all be paying a lot more to borrow money. The reason? The lender would need to place everyone in the same potentially high-risk category, without accurate credit scores and credit reports available to evaluate risk.

You may be able to find a way to get some relief in your repayment terms on your own, although it may come with certain credit blemishes. I suggest that you determine how much debt you can realistically afford to pay each month. Then using Bankrate.com's "Debt pay down calculator," enter the amount you owe and the monthly payment you have determined you can afford. The calculator will give you the interest rate that you need to make the repayment amount work. Next, call the creditor and ask to speak to a supervisor about an interest-rate adjustment to make your payment manageable.

If that doesn't work out, I suggest you look into a debt management plan through a qualified, nonprofit credit counseling organization. Credit counseling agencies have negotiated reduced interest rate programs with many of the largest card issuers that you can take advantage of if you can meet certain guidelines. Your creditor may report that the account is part of a debt management plan, but the notation is not considered when calculating your FICO credit score and it is removed as soon as you complete the program. Credit reporting policies vary by lender so you may incur some credit dings with a debt management plan, but you may not.

Be aware that negotiating a reduction in the debt you owe can result in a paid charge-off or settlement notation, which is a serious credit report and credit score negative. You may also have tax consequences for any debt reduction that exceeds $600. The amount exceeding $600 is reported to the IRS as income on Form 1099.

For mortgage debt, there is a program that is financed by HUD and lenders called the Hope Now alliance. It offers help in getting you through the frustrating process of mortgage modification. Here too, there may be credit report consequences, but they will be less onerous than doing nothing and ending up in foreclosure. You can find them at the Hope Now website or by calling (888)995-HOPE.

My last word for you is to remember that no matter what happens, blemished credit isn't the end of the world. Everyone makes mistakes or has a run of bad luck from time to time. The trick with heavy debt is to understand what happened, why it happened and take some steps to make sure it doesn't happen again.

Good luck!

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