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Credit Card Modification Pros and Cons

If you’ve struggled with credit card debt before, then there’s a high likelihood that you’re familiar with what credit card modification is all about. It is a process that involves skilled financial negotiators work directly with your creditors to explain why you’ve defaulted credit card payments. 

Should the negotiations be successful, your credit card company will offer you a negotiated settlement, which is often lower than the amount you owed before the modification. 

Your negotiators should come from a firm that will represent your interests and work to resolve your debt in a structure that delivers monthly payment relief and, at the same time, a reduction in the principal amount owed. 

You have a role to play before, during, and after the negotiations. First, you must save funds that will be later used to settle what you owe your creditors once your negotiators strike a modification deal with your creditors. This means that you will have to make a savings deposit each month in an FDIC insured savings account. Notably, only you can have access to the account.

Pros and Cons

Beware of the following cons that come along with credit modification programs

From the onset, credit card modification sounds like a good idea, and it is! This doesn’t mean, though, that it doesn’t come along with some downsides. For example, you have to demonstrate legitimate hardship like sudden loss or reduction of income, medical emergencies, divorce, or death of a close loved one like a spouse or child. This is sometimes hard to prove. 

Additionally, a situation or circumstance that genuinely made you fall back on your payment may not be considered as a good excuse by your creditors why you defaulted. 

There’s also the fact that credit modification is not ideal for everyone. Your credit card score plays a big role when it comes to determining if you’re eligible. With that in mind, find out from your desired firm if you’re eligible. 

Another notable downside that comes along credit card modification boils down to the sacrifices you have to make while under the program. You cannot, for instance, add new debt each month. You have no choice but to stop charging. Accumulating new debt as you pay off your debt will result in little or no progress at all. Your best bet here is to live within your means even in cases where you can afford a little luxury. 

When all is said and done, credit card modification pros and cons can be summarised as follows;

The Benefits

  • Credit card modification uses a budget-based approach to calculate how much you should pay monthly. 
  • The new monthly payment is, in most cases, lower than all your credit card minimum payments, so you end up with a debt repayment structure that’s easy to manage.
  • Successful modification agreements usually reduce by a huge percentage of the amount of principal, interest, and penalty charges.
  • You don’t have to enroll all credit cards.
  • The program is always between 2 and 4 years, which is way shorter than making minimum payments. 

The Challenges

  • Credit card modification will most likely hurt your credit score in the short term.
  • Not all creditors will agree to reduce the amount of money you owe them. It all boils down to how good your negotiators are. 
  • You have to document financial hardship like death and hope that your creditors will be empathetic.
  • You must document evidence of income in order to make monthly savings deposits that will be used to settle future repayment agreements.

Back-Up Your Request With Strong Evidence

Many companies won’t admit exactly who qualifies for their credit card modification programs. Fortunately, lenders, these days, appear to be lenient on eligibility.  As such, your best bet is to remain truthful and back up each assertion you make on financial difficulty. 

Your credit company already knows almost everything about your financial situation. This includes your credit scores, spending habits, and even income. You probably won’t have success in negotiating for modification if you’re requesting modification so that you can save a few dollars every month. Your request should be legitimate. 

Note that a company will consider many factors before admitting you into their debt modification program. The most common ones include your payment history, the size of your credit card balance, your income, and other assets and debts that you may have. 

Note too that you don’t have to be behind on your monthly bills. Sometimes, missing one or two payments can make the process challenging. This doesn’t mean in any way that it can affect your eligibility for credit card modification. 

Final Word

Racking up debt can happen faster than you expect. Do everything within your means to avert that situation. One measure you can take is credit card modification. Consider it immediately you start defaulting credit card payments. 

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Written by Virily Editor

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