First, take advantage of Help With My Credit, a resource for struggling consumers created by a group of major card issuers, including Bank of America, Capital One, Citi, and Discover Card, plus the MasterCard and Visa networks. The service—which is available through both a toll-free number, (866) 941-1030, and a website—offers tips on managing your credit cards, communicating with the card companies, and finding an accredited credit counselor.
Ask the Credit Card Companies About Their Debt Management Plans
In an effort to prevent too many consumers from defaulting entirely on their debts, the credit card companies are now offering customers what they call debt-management plans. In a typical DMP, you can get your interest rate slashed (and sometimes eliminated entirely) in return for signing on to a guaranteed repayment program, in which payments are automatically debited from your checking account each month.
I've coached people who had their interest rates cut from 29% to zero as a result of signing up for a debt-management plan. On top of that, card companies are often willing to waive the monthly over-the-limit fees for DMP participants who've exceeded their credit limits.
The downside to these programs is that once you sign up, the credit card company will usually close your account or at least "freeze" it so you can't use it anymore. As we'll see in the next step, this can lower your credit score. Indeed, simply reporting that an account of yours has been placed on a payment or settlement plan can hurt your credit rating.
An explanation of how your credit record may be affected and whether they will notify the credit bureaus is usually included in the contract the card companies make you sign before they let you begin a DMP. Before you sign, READ THE CONTRACT! It is crucial that you understand just what you're getting into (including what happens if you don't stick with the program).
Some credit card companies won't report your participation in a DMP if you ask them not to. Not paying your cards at all will hurt your score a lot more than being in a DMP plan. So will having your debt "charged off," which is what happens if you stop making payments altogether. Anyway, once your debt is paid down, your credit score will head back up again.