Cut a Credit-Card Debt Deal for Yourself

Bank issuers of credit cards seem much more willing lately to talk about negotiating a debt settlement with delinquent card holders.

Everyone who has ever held a credit card and not paid off the entire balance at the end of every billing period has experienced the sting of high interest rates and late fees. And for those holders who have built up enormous balances and rolled debt from card to card over the years, those crushing interest payments have become a large part of their monthly expenses. It's been impossible to get anyone from the credit card issuing company to talk about an alternative arrangement of payments or a restructuring of debt on those cards, until recently.

There are clear reasons for credit card companies to be ready to talk to you now.

Unemployment has gone over 9% and has caused wide scale default on credit card debt.

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Rolling credit figures, the closest approximation of credit card debt, was clocked at $940 billion in March, not the largest number ever, but by far the largest number in the midst of a recession.

In addition, the Federal Reserve reports that more than 6.5% of that debt is more than 30 days past due, the largest percentage of delinquent debt reported since 1991, when those figures first began to be compiled.

Now, with the huge amounts of government bailout money going to banks with questionable debt assets, there has been increased interest in "finding the bottom of the balance sheet" and determining just how much of every kind of debt needs to be restructured or entirely written off. Consumer credit is finally getting some of the benefits of these measures.

For credit card issuing companies like Capital One Financial (COF), Discover(DSC) and even larger bank issuers like Bank of America(BAC) and Citigroup(C), fresh liquidity from the government and from recent stock secondaries are allowing a realistic view of the mountain of consumer debt on their books.

Credit card default rates hit highs in May, proving that the consumer is under severe stress, but also pushing institutions to retire more credit card debt with settlements or expect write-off rates to continue to climb.

The process has been slow and will continue to be difficult. Don't expect your credit card company to call you out of the blue and offer you a settlement plan of 20 cents on the dollar to pay off the balance of what you owe. And clearly this isn't a trend that the credit card companies are advertising -- they are not looking for an avalanche of consumers calling up and expecting a 50% reduction on any outstanding balance.

But for those consumers who have lost their jobs and have outstanding balances more than 90 days old, many of the banks are ready to talk.

This is because in times of recession, not surprisingly, consumer debt has less value to third-party collection companies.

In fat times, collection agents would be willing to pay 15 cents on the dollar for delinquent debt to credit card issuers. In a healthy, growing economy, almost everyone has something that they can pay on their debts. Recently in the middle of the global slow down, that number has fallen to about 5 cents.

And a new business is rising to accommodate these trends: debt settlement agencies. For an upfront fee, these agencies claim to do all the calling and negotiating of delinquent credit card debt. While the success rate of these companies is poor, they are still getting a large number of card holders to use their services, placing more pressure on the credit card issuers to find settlements for less.

Of course, the most likely candidates for a slashed settlement are also those least likely to have the cash to settle -- the unemployed renter, with no wages to garnish and no hard assets to lien.

But offering any settlement opportunities to anyone indicates a change in the attitude of the bank issuers, ready to get something instead of nothing and prepared for further consumer credit "writedowns" on their road back to a clean balance sheet and financial solvency.

While the stories of delinquent debt are tragic for consumers, consumer credit assets have also been a difficult part of the balance sheet for financial institution to place a reliable value upon. For the future, this new tendency to find compromises and settlements is a refreshing and hopeful sign for both.

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