Are more banks modifying customers' credit card debt?

09.11.09
By Lewis Green

In recent months, there have been a slew of media reports and anecdotal evidence suggesting that credit card issuers are raising customers' interest rates, thus making it more difficult for them to pay off credit card debt.

But an article in the Washington Post this week says that many troubled borrowers are actually finding some relief from banks that are either modifying or forgiving this debt.

It is similar to home loan modification, the news provider says, but in this case lenders are taking steps such as reducing interest rates for a set period, lowering the monthly payment, forgiving certain fees or simply letting the cardholder settle the debt for less than they owe.

The reason for the banks' actions? They would rather receive a portion of the money owed to them than have to write off the account altogether.

Consumer advocates have long suggested that credit card customers who are having difficulties making payments should phone their issuer and try to negotiate different terms.

However, they also warn that these types of modifications can have a negative effect on a borrower's credit score, so it's wise to proceed with caution and weigh all options before committing to new terms.

"I think the credit card companies have learned from the mortgage problems the value to them and their customers of trying to work something out where it's appropriate and feasible," Nessa Feddis of the American Bankers Association told the Post.

Credit-card charge-offs - or accounts that lenders deem uncollectable - have reached near-record levels for many issuers and are likely to continue to be a problem in the near future.

According to Moody's, the charge-off rate index stood at 10.52 percent in July and it is expected to peak in the middle of next year at between 12 and 13 percent.

More Credit & Debt Articles | News Home | Discuss in our Forum

Modifications can affect a person's credit score.