Advertiser Disclosure

I’m Ill and Can’t Pay Off My Credit Card. Now What?

May 23, 2014
Credit Card Basics, Credit Cards, Credit Score, Personal Finance
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own.

Bad things happen to good people. You can be the most responsible individual a credit card company has ever approved a card for, and something might happen to you that makes it difficult or impossible to pay off your credit card — a serious illness, for instance.

What happens then? Is there any way to prevent a default on your card, or any way to prevent negative credit card actions from impacting your credit score? The answer is, “probably.”

Hardship plans can help

Hardship plans exist at many credit card companies. The logic behind helping a consumer out in hard times has plenty of evidence to support it. Ideally, a credit card company wants to at least collect back the principal it has floated on your behalf to merchants you have purchased from. If it can get some interest on top of that, so much the better. In the worst-case scenario, a credit card company ultimately wants to receive something instead of nothing.

If a consumer is in terrible shape and the credit card company won’t assist, it raises the likelihood that the customer will default. He will be sent to internal collections first. Then the credit card company will extract what it can, and either outsource the debt collection to an agency or sell it off for pennies on the dollar. If it outsources, it will only get about 60% of whatever gets collected. Even that is better than an outright sale.

Get the conversation started

Card companies won’t advertise that they have a hardship plan, because the truth is that they are likely to negotiate with anyone who is truly unable to meet their obligation in full. However, it’s a good way to get the conversation going with a representative, by asking if there is a hardship plan. Some reps may say there isn’t. Hang up, and try again later.

Card companies are more likely to be responsive if you are honest with them, and especially if you have a great track record of paying on time, and in full. A suggested negotiation process is covered in another article, but what’s important in the grand scheme of things is that you tell a compelling emotional story about your situation.

If you make it clear that you want to make good on your obligation, that you don’t want the card company to be put in a bad position, and you want minimal impact on your credit score, and you fill in the blanks with that emotional story, you are maximizing your chances of making a deal. While the reps in this department hear these stories all day long, they will appreciate authenticity.

Protect your credit score

You really want to focus on how any deal will impact your credit score. If the deal is going to harm your score dramatically, then you may want to weigh other options. It would be ideal if you can convince the card company to not report anything negative, provided you meet all the terms of the deal worked out.

Ultimately, no matter what anyone says, everything is negotiable. The more detailed a plan you work out, the better.

Doctor and patient image via Shutterstock