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Paying less than the minimum credit card payment can lead to a charge-off

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Paying what you can on a credit card will not keep it from being charged-off if it's less than the minimum payment due.

Question: I fell seriously behind on an account (cc) but was able to resume making monthly payments although less than the minimum required payment. The monthly billing disclosures stated that as long as the account did not fall 180 days in delinquency – negative action would be avoided. I remained in contact with the creditor – each month advising them when next payment would be made and the amount ($100).

Finally, mid-April 2017, I advised the creditor that I would be able to catch up the past due amount of approx. $365 on May 1st and would be able to make the minimum monthly payment going forward.

However, to my dismay, about two weeks later I discovered that the account had been charged off. Was this legal? Given the fact the disclosure that accompanied my monthly bill stated no negative action would be taken as long as I didn’t go 180 days delinquent AND was making $100 payments each month?

Yes, unfortunately it was legal for the credit card company to charge-off your account. When you sign a credit card agreement, whether physically or electronically you agree to make the minimum monthly payments. The agreement constitutes a legal contract.

When you fail to make payments on a timely basis, you breach the contract. Even though the billing disclosure stated “… as long as the account did not fall 180 days in delinquency – negative action would be avoided,” that does not prohibit the credit card company from exercising their right to charge-off the account. And here is why.

That disclosure assumes you’re making the minimum monthly payment. Making less than the minimum payment can lead to a charge-off. It’s equivalent to sending no payment at all.

You may not receive a warning or collection calls from the credit card company but your account will generally be charged-off in the same 180-day time period as if no payments were received.

Anytime you make less than the minimum payment, your credit card account can be considered delinquent and a charge-off can ensue.

Unless you reached out to your credit company to make an official repayment plan prior to missing payments and paying less than the minimum, they can legally charge-off your account.

Some credit card issuers have official “hardship programs” that are temporary (3, 6, 12 months), or for the lifetime of the balance repayment. But entering into a hardship program is like re-negotiating the terms of the agreement.

More about credit card hardship programs

Most people experience an economic hardship at one time or another. Credit card companies realize this and most, if not all, have some type of credit card hardship program to help consumers. But they typically do not publicize this option.

A credit card hardship program typically includes: lowering the interest rate, lowering the minimum payment or reducing fees and penalties. Credit card hardship programs can be short-term (up to 12 months) or permanent (until the balance is paid).

The biggest problem with credit card hardship programs is that credit card companies don’t typically offer them to struggling account holders.

So don't be shocked if you haven't heard about it.

It’s so secret that credit card companies may even call their hardship programs by different names. If you’ve been speaking to a general customer service representative, they may not have offered this type of program as an option because they may not know the company has a hardship program. Plus, credit card companies aren't required to offer hardship programs, it's in their sole discretion to do so.

I would definitely call, email or write the credit card company to see if there’s a possibility to get the account out of charge-off status in exchange for a hardship program.

Certainly you are capable of making payments as proven by your payment history. You could have benefitted from having your interest rate and minimum payment officially reduced to something you could handle at the time. Make this argument, in a polite way, to someone in a decision-making position.

Since you were in constant contact with your credit card company, someone should have offered you the option of a credit card hardship program.

To qualify for a credit card hardship program the company may have questions about your household income and expenses.

What happens to your credit score with a credit card hardship program

More than likely charging privileges will be suspended with a hardship program. Some credit card issuers reinstate the card once the program is completed.

How the credit card hardship program appears on your credit report depends on the credit card company. Some credit card issuers will not report negative information as long as the customer maintains a good standing in the program.

In some instances, negative information will be removed if you complete the program.

If you’re able to get into a credit card hardship program, make sure you ask all the pertinent credit score (i.e. will my payments be reported “Paid as Agreed” and “Never Late”) questions before entering into an agreement.

The best of luck to you.

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