Help! How to Battle Hugh Rate Hike??

[biznizman]

WA State

I've got several business credit cards with high balances as I've gotten clobbered during the economic downturn. I recently found out one of the cards the promotion rate ran out and they jacked the rate up to 24%. All my other cards are 8-13%. I have decent credit (high 600's to low 700's). From what I understand even though these cards are in my business name (a partnership) they go on my personal credit.

I contacted the bank and told them my decreased business revenue is not going to allow me to keep paying the minimum payment on all my cards and that I wills simply allocated funds to the cards starting with the lowest interest rate. They said they couldn't lower my rate and transferred me to the Hardship department (this is Chase bank.) The Hardship department was going to offer lowering my minimum payment but not the interest rate. I told them that is pointless as it is just going to stretch the debt out and make the 24% interest even that much more costly. When all the other cards have 8-13% I am completely baffled why Chase won't compete (except for the fact they may be getting lots of defaults so they are attempting to collect as much as possible in anticipation of a default.)

I've done my homework somewhat and think I know how 'the game' is played. It sounds like it goes like this. Stop paying you credit card for a while (not sure how many months) - yes it will adversely effect your credit but from what I understand the bank won't negotiate with you until you essentially proven you are serious about no longer paying them. Once you have done that, you can essentially negotiate a pay-off to close the account and settle the debt. I've heard it is common to get a deal for $0.50 on the dollar or about half the balance. This seems to make sense seeing it is an unsecured debt so they can't take any of your assets and they've already collected in many cases probably a handsome profit on the interest so they are essentially just giving the interest profit back, and then some, to avoid a large loss.

What really pisses me off is that I tried to be both responsible and reasonable to negotiate a lower interest rate (much lower) so I can keep paying the card off. In my opinion they are acting very stupid in the sense would they not prefer to get the full debt paid with little or no interest versus only being able to recoup part of the balance or possibly none at all?

Bottom line is 24% is unacceptable. I will pay all my other cards and stop paying this one and take the credit hit if I have to. There's no way I will pay 24% on anything. This is loan sharking practically and should be illegal.

So my question is what is the best strategy going forward, assuming I have to stop making payments to get any negotiating leverage? How many months do you have to stop making payments before they are 'ready to deal' as I know each past month due is a negative strike on my credit report so obviously I want to settle the debt as soon as possible.

I know some of the obvious advice here is if you can pay off half the debt, why not pay off half now and try to transfer the remaining balance to other cards? Well 1) I don't have the funds to pay off half the debt, so I'll have to either work out a payment plan or do something drastic like sell a car, and 2) all my other cards are not offering balance transfers. This is typical of most banks as all the offers in the mail have stopped since the meltdown and the banks had to decrease their leverage.

Any advice is greatly appreciated.

 

[Antigone*]

WA State

I've got several business credit cards with high balances as I've gotten clobbered during the economic downturn. I recently found out one of the cards the promotion rate ran out and they jacked the rate up to 24%. All my other cards are 8-13%. I have decent credit (high 600's to low 700's). From what I understand even though these cards are in my business name (a partnership) they go on my personal credit.

I contacted the bank and told them my decreased business revenue is not going to allow me to keep paying the minimum payment on all my cards and that I wills simply allocated funds to the cards starting with the lowest interest rate. They said they couldn't lower my rate and transferred me to the Hardship department (this is Chase bank.) The Hardship department was going to offer lowering my minimum payment but not the interest rate. I told them that is pointless as it is just going to stretch the debt out and make the 24% interest even that much more costly. When all the other cards have 8-13% I am completely baffled why Chase won't compete (except for the fact they may be getting lots of defaults so they are attempting to collect as much as possible in anticipation of a default.)

I've done my homework somewhat and think I know how 'the game' is played. It sounds like it goes like this. Stop paying you credit card for a while (not sure how many months) - yes it will adversely effect your credit but from what I understand the bank won't negotiate with you until you essentially proven you are serious about no longer paying them. Once you have done that, you can essentially negotiate a pay-off to close the account and settle the debt. I've heard it is common to get a deal for $0.50 on the dollar or about half the balance. This seems to make sense seeing it is an unsecured debt so they can't take any of your assets and they've already collected in many cases probably a handsome profit on the interest so they are essentially just giving the interest profit back, and then some, to avoid a large loss.

What really pisses me off is that I tried to be both responsible and reasonable to negotiate a lower interest rate (much lower) so I can keep paying the card off. In my opinion they are acting very stupid in the sense would they not prefer to get the full debt paid with little or no interest versus only being able to recoup part of the balance or possibly none at all?

Bottom line is 24% is unacceptable. I will pay all my other cards and stop paying this one and take the credit hit if I have to. There's no way I will pay 24% on anything. This is loan sharking practically and should be illegal.

So my question is what is the best strategy going forward, assuming I have to stop making payments to get any negotiating leverage? How many months do you have to stop making payments before they are 'ready to deal' as I know each past month due is a negative strike on my credit report so obviously I want to settle the debt as soon as possible.

I know some of the obvious advice here is if you can pay off half the debt, why not pay off half now and try to transfer the remaining balance to other cards? Well 1) I don't have the funds to pay off half the debt, so I'll have to either work out a payment plan or do something drastic like sell a car, and 2) all my other cards are not offering balance transfers. This is typical of most banks as all the offers in the mail have stopped since the meltdown and the banks had to decrease their leverage.

Any advice is greatly appreciated.

No advice to give you. You sound like you've already decided what you are going to do.

 

[Mass_Shyster]

Any advice is greatly appreciated.

The correct procedure is to make minimum payments on the balances with the lowest rates, and make as large a payment as possible on the balance with the highest rate. When that's paid off, move largest payment to the next highest rate.

 

[biznizman]

The correct procedure is to make minimum payments on the balances with the lowest rates, and make as large a payment as possible on the balance with the highest rate. When that's paid off, move largest payment to the next highest rate.

That would be great but the fact of the matter is the revenues right now are not large enough to make ALL the minimum payments on all the cards. I've been getting by on savings to make up the difference but that is about to run out.

The thing is that I'm not that far off. If I was able to get this card and many another card or two rates down, so my average interest rate was lower, that would probably lower my total payment to where I could make it. That's why I'm starting with focusing on this ridiculous 24% card.

I suppose the first response was essentially correct. If they won't lower the rate and I can't afford all the min payments, I won't be able to pay them anyway, so I may have no choice.

I think more what I'm looking for is some specific advice on how best to handle it once I stop paying. How soon to contact them to negotiate, what terms are typically possible, etc.

I've heard that it is usually a waste of money to enlist a consumer credit counseling service as they do for you what any intelligent person can do for themselves with the right information.

 

[Antigone*]

That would be great but the fact of the matter is the revenues right now are not large enough to make ALL the minimum payments on all the cards. I've been getting by on savings to make up the difference but that is about to run out.

The thing is that I'm not that far off. If I was able to get this card and many another card or two rates down, so my average interest rate was lower, that would probably lower my total payment to where I could make it. That's why I'm starting with focusing on this ridiculous 24% card.

I suppose the first response was essentially correct. If they won't lower the rate and I can't afford all the min payments, I won't be able to pay them anyway, so I may have no choice.

I think more what I'm looking for is some specific advice on how best to handle it once I stop paying. How soon to contact them to negotiate, what terms are typically possible, etc.

I've heard that it is usually a waste of money to enlist a consumer credit counseling service as they do for you what any intelligent person can do for themselves with the right information.

You heard right.

 

[TigerD]

For the OP:

If you follow through on the plan you are considering, someone like me will be calling. Then you will be sued. Then it will get bad.

You think you hold the cards. You don't owe enough money to hold the cards.

Borrow $10,000 and the bank has you by the short and curlies. Borrow $10 million and you have the bank by the short and curlies.

DC

 

[biznizman]

The correct procedure is to make minimum payments on the balances with the lowest rates, and make as large a payment as possible on the balance with the highest rate. When that's paid off, move largest payment to the next highest rate.

I see your point but collection and litigation is costly to the bank. I'd be surprised if the bank would go that route instead of negotiating a settlement, especially when the customer doesn't have liquid assets to payoff the debt.

I'm sure it depends on the bank, the amount of debt, the customer history, and other factors. If you are trying to settle a $8000 debt for $4000 I doubt most banks will spend the time an expense to try to put a lien on someone's home for $4000. Of course if that were common you can just sell your home and rent before negotiating.

I'm against trying to settle debt for less. I'm fine paying what I owe with a reasonable interest rate. 24% is no where near reasonable. I'm sure the bank's opinion is different but when I have a fixed rate card at 7.99% from one competitor and 11.99% fixed from another, it doesn't make any sense to me that they would not lower their rate to avoid all the hassle and expense that will in sue when I stop paying them.

Of course if you are making money from all that 'hassle' of trying recover debt, then your incentive is to have more defaults as that is what your revenue is tied to. If the bank settled a lower rate to help me keep paying, you wouldn't get the collection business in the first place from them and thereby make no money.

 

[racer72]

I see your point but collection and litigation is costly to the bank.

Not really. The cost of collection is rolled into the high interest rates folks like you already pay. And the costs of litigation will be included in the judgment if you are sued. The only time the banks lose is from bankruptcy, that is a tax write off so the actual losses are not that bad.

 

[Zigner]

I'm fine paying what I owe with a reasonable interest rate. 24% is no where near reasonable.

But it was FINE for you when it was just a number in the future. You were eager to jump all over that deal.

 

[JustAPal00]

Not really. The cost of collection is rolled into the high interest rates folks like you already pay. And the costs of litigation will be included in the judgment if you are sued. The only time the banks lose is from bankruptcy, that is a tax write off so the actual losses are not that bad.

A tax write off only saves you the money you would have paid in taxes. The rest you still lose! Granted this money comes off the top so essentially you are writing off monies from the highest bracket, but isn't that around 35%? So they still lose 65%.

 

[TigerD]

Regardless of all the noise about interest rates and banking write-offs, if you are carrying more credit card debt than you can pay it is your fault.

Credit cards are not good loan vehicles. They are a convenience. If you carry a balance that you cannot pay off within a month or two, you are begging for someone like me to start contacting you to discuss your priorities.

DC

 

[racer72]

A tax write off only saves you the money you would have paid in taxes. The rest you still lose! Granted this money comes off the top so essentially you are writing off monies from the highest bracket, but isn't that around 35%? So they still lose 65%.

I was pointing out the creditor get the tax write off, not the debtor.