9 Crucial Things to Know About Credit Card Modification

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Are you drowning in credit card debt?

Maybe you’ve tried consolidating your credit card debt, but your credit score is too low to qualify. Perhaps you have too much to consolidate it all together.

Credit card modification might help in these situations, but it comes with serious risks. Here’s how it works.

1. What is credit card modification?

Beverly Harzog, a credit card expert and the author of The Debt Escape Plan, lumps credit card modification under the umbrella of debt settlement. The process of hiring a negotiator is similar, but the focus is on unsecured credit card debt.

With credit card modification programs, companies manage your debts for you. They get agreements from your creditors to let you pay less than you owe.

The results are similar to debt settlement negotiations. The negotiator works on your behalf to convince your creditor that you won’t be able to make all of your payments. Creditors then agree to settle for a smaller amount.

2. How does credit card modification work?

When you enroll in a credit card modification program, you stop making payments to your creditors. Instead, says Harzog, you make monthly payments to the company negotiating for you.

“These companies keep the money in an account,” Harzog explains. “As you make your monthly payments, the account grows. Down the road, when a creditor agrees, the money is used to pay the settled amount.”

Harzog says it can take six months or more for the first creditor to settle. After that, it might go faster. She also points out that once you enter a credit card into a program like this, you can’t use your credit account anymore — it’s considered closed.

3. What if creditors don’t agree?

Just because you enter debt settlement negotiations doesn’t mean that all your creditors will agree to the terms. “There are no guarantees in this type of business,” says Harzog.

A creditor may decide to sue you for the amount you owe after you stop making payments, Harzog points out. Depending on the credit card modification company you use, they might represent you in court in such a case.

If creditors don’t agree to settle your debt, the accounts that aren’t settled could be turned over to collections. At that point, you begin making payments to the collections company.

4. Credit card modification fees

When you hire a debt negotiator that agrees to represent you, there will be fees. The Federal Trade Commission prohibits debt settlement companies from collecting upfront fees for debt settlement. However, you can be charged fees after at least one debt has been successfully settled.

Additionally, many companies charge attorney fees. As Harzog notes, this is often a flat fee that’s rolled into your payment agreement with the debt settlement company, too.

On top of all that, you could end up with huge fees from your creditors. When you stop paying your credit card bill, those fees add up.

If the credit card modification is successful, those fees are taken care of in the settlement. But if a creditor refuses to settle, the fees are still part of your financial situation. Those extra charges could wipe out any savings you got from the settlement.

5. What does credit card modification do to your credit?

“Whether it’s credit card modification or debt settlement, your credit is going to take a hit up front,” Harzog points out. “You’re not making your payments, and that’s the biggest part of your credit score.”

However, Harzog continues, the impact starts to fade after a couple of years. “If you are in a tough spot, it’s a matter of priorities right now,” she says. “Get the debt taken care of and don’t worry about the credit score as much. You can rebuild your credit once the debt is gone.”

Plus, if you complete your credit card modification program, you might be able to get your creditors to mark your accounts “paid as agreed.”

Nonetheless, prepare for the consequences of poor credit. You likely won’t be able to get new loans, including credit cards. If you want to get a car loan or a mortgage in the next couple of years, says Harzog, credit card modification may not be for you.

6. Don’t forget about taxes

Harzog says one of the things many borrowers overlook is the tax impact of these programs. “No matter what it’s called, if it’s settled debt, it’s considered income to the IRS,” she warns. “Talk to a tax professional to work all that out.”

It’s important to plan for the possibility that some of the principal, interest, and fees that you end up not paying as the result of debt settlement negotiations could be taxable.

Your debt settlement amount could mean added income in the eyes of the IRS, bumping you into a higher tax bracket and making your tax bill unmanageable. As a result, you could wind up with a payment plan to the IRS once your debts are taken care of.

7. Watch out for scams

While there are legitimate credit card modification programs, Harzog points out that there are plenty of scams as well.

“If you decide this is the route you need to take, the number one thing is to be sure you go with a reputable organization,” Harzog says. She recommends that you start with the National Foundation for Credit Counseling (NFCC).

The NFCC offers the resources you need to get your debt under control and can walk you through possible options for your situation. Harzog says choosing companies and counselors that are NFCC-certified reduces the chances of being scammed.

The company you choose should also be transparent with their fees. Most debt negotiation companies charge fees, but they are often collected on a monthly basis, wrapped up as part of your program.

Harzog advises people to beware of companies that guarantee a settlement or modification program. Creditors can choose not to settle, and no negotiator can deliver a 100% success rate.

8. Can you do it yourself?

Before you decide to pay someone else to negotiate with your creditors, Harzog suggests trying yourself. “Contact the credit card issuer yourself,” she says. “They have hardship departments and can maybe help you.”

As long as your account isn’t in collections, she adds, many creditors will work with you on a modified payment plan. You might still have to close the account, but at least you won’t pay extra fees.

However, creditors’ hardship programs might not work as a long-term solution, Harzog says. If you think it will take more than a year to sort out your problems, that option may not be ideal.

9. Who should consider credit card modification?

In the end, Harzog says, these types of programs can be helpful to consumers overwhelmed with debt and verging on insolvency. However, she advises they be used as last resorts.

Before you turn to credit card modification or debt settlement, try other avenues first:

In some cases, Harzog acknowledges, you just can’t get there on their own. If your payments and interest are sucking up too much of your income and you aren’t eligible for other programs, credit card modification programs and debt settlement can be last-ditch efforts.

“If you really don’t see any way out,” Harzog says, “this can be the option you try just before bankruptcy.”

Interested in a personal loan?

Here are the top personal loan lenders of 2018!
LenderAPR RangeLoan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal Loans: Fixed rates from 6.990% APR to 14.865% APR (with AutoPay). Variable rates from 6.255% APR to 12.555% APR (with AutoPay). SoFi rate ranges are current as of September 1, 2018 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.255% APR assumes current index rate derived from the 1-month LIBOR of 2.08% plus 4.425% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

    To check the rates and terms you qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull.See Consumer Licenses.
  2. Minimum Credit Score: Not all applicants who meet SoFi’s minimum credit score requirements are approved for a personal loan. In addition to meeting SoFi’s minimum eligibility criteria, applicants must also meet other credit and underwriting requirements to qualify.
  3. SoFi Personal Loans are not available to residents of MS. Maximum interest rate on loans for residents of AK and WY is 9.99% APR, for residents of IL with loans over $40,000 is 8.99% APR, for residents of TX is 9.99% APR on terms greater than 5 years, for residents of CO, CT, HI, VA, SC is 11.99% APR, and for residents of ME is 12.24% APR. Personal loans not available to residents of MI who already have a student loan with SoFi. Personal Loans minimum loan amount is $5,000. Residents of AZ, MA, and NH have a minimum loan amount of $10,001. Residents of KY have a minimum loan amount of $15,001. Residents of PA have a minimum loan amount of $25,001. Variable rates not available to residents of AK, TX, VA, WY, or for residents of IL for loans greater than $40,000.
  4. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

2 Includes AutoPay discount. Important Disclosures for Payoff.

Payoff Disclosures

  1. All loans are subject to credit review and approval. Your actual rate depends upon credit score, loan amount, loan term, credit usage and history. Currently loans are not offered in: MA, MS, NE, NV, OH, and WV.

3 Important Disclosures for FreedomPlus.

FreedomPlus Disclosures

  1. All loans available through FreedomPlus.com are made by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. All loan and rate terms are subject to eligibility restrictions, application review, credit score, loan amount, loan term, lender approval, and credit usage and history. Eligibility for a loan is not guaranteed. Loans are not available to residents of all states – please call a FreedomPlus representative for further details. The following limitations, in addition to others, shall apply: FreedomPlus does not arrange loans in: (i) Arizona under $10,500; (ii) Massachusetts under $6,500, (iii) Ohio under $5,500, and (iv) Georgia under $3,500. Repayment periods range from 24 to 60 months. The range of APRs on loans made available through FreedomPlus is 4.99% to a maximum of 29.99%. APR. The APR calculation includes all applicable fees, including the loan origination fee. For Example, a four year $20,000 loan with an interest rate of 15.49% and corresponding APR of 18.34% would have an estimated monthly payment of $561.60 and a total cost payable of $7,948.13. To qualify for a 4.99% APR loan, a borrower will need excellent credit on a loan of $15,000 with a term of 24 months, and qualify for at least two of the following discounts: (1) add a co-borrower who has sufficient income; (2) use at least fifty percent of the loan proceeds to directly pay off existing debt; or (3) show proof of having at least forty-thousand dollars in retirement savings – contact FreedomPlus for further details.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

5 Important Disclosures for LendingPoint.

LendingPoint Disclosures

  • Loan approval is not guaranteed. Actual loan offers and loan amounts, terms and annual percentage rates (“APR”) may vary based upon LendingPoint’s proprietary scoring and underwriting system’s review of your credit, financial condition, other factors, and supporting documents or information you provide. Origination or other fees from 0% to 6% may apply depending upon your state of residence. Upon LendingPoint’s final underwriting approval to fund a loan, said funds are often sent via ACH the next non-holiday business day. LendingPoint makes loan offers from $2,000 to $25,000, at rates ranging from a low of 15.49% APR to a high of 34.49% APR, with terms from 24 to 48 months. The loan offer(s) shown reflect a 28 day payment cycle which is being offered as a courtesy as many of our customers are paid on a biweekly schedule and thus this may better align the loan payment dates with your actual income receipt schedule.

6 Important Disclosures for LendingClub.

LendingClub Disclosures

All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.95% to 35.89%*. The origination fee ranges from 1% to 6% of the original principal balance and is deducted from your loan proceeds. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at the time of application. The average origination fee is 5.49% as of Q1 2017. In Georgia, the minimum loan amount is $3,025. In Massachusetts, the minimum loan amount is $6,025 if your APR is greater than 12%. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months. Borrower must be a U.S. citizen, permanent resident or be in the United States on a valid long term visa and at least 18 years old. Valid bank account and Social Security number are required. Equal Housing Lender. All loans are subject to credit approval. LendingClub’s physical address is: LendingClub, 71 Stevenson Street, Suite 1000, San Francisco, CA 94105.

†Per reviews collected and authenticated by Bazaarvoice in compliance with the Bazaarvoice Authentication Requirements, supported by anti-fraud technology and human analysis. All reviews can be reviewed at reviews.lendingclub.com

**Based on approximately 60% of borrowers who received offers through LendingClub’s marketing partners between January 1, 2018 to July 20,2018. The time it will take to fund your loan may vary.


7 Important Disclosures for Earnest.

Earnest Disclosures

  1. Earnest does not lend in Alabama, Delaware, Kentucky, Nevada, or Rhode Island.

8 Important Disclosures for Avant.

Avant Disclosures

* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.

** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33


* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

* Your loan terms are not guaranteed and are subject to our verification and review process. You may be asked to provide additional documents to enable us to verify your income and your identity. This rate includes an Autopay APR reduction of 0.5%. By enrolling in Autopay your payments will be automatically deducted from you bank account. Selecting Autopay is optional. Annual Percentage Rate is inclusive of a loan origination fee, which is deducted from the loan proceeds. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. All loans made by WebBank, member FDIC. Please refer to Upgrade’s Terms of Use and Borrower Agreement for all terms, conditions and requirements.

** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.

7.73% – 29.99%$1,000 - $50,000

Visit Upstart

6.26% – 14.87%1$5,000 - $100,000

Visit SoFi

6.99% – 35.97%*$1,000 - $50,000

Visit Upgrade

5.99% – 24.99%2$5,000 - $35,000

Visit Payoff

4.99% – 29.99%3$10,000 - $35,000

Visit FreedomPlus

5.99% – 18.99%4$5,000 - $50,000

Visit Citizens

15.49% – 34.49%5$2,000 - $25,000

Visit LendingPoint

6.95% – 35.89%6$1,000 - $40,000

Visit LendingClub

6.99% – 18.24%7$5,000 - $75,000

Visit Earnest

9.95% – 35.99%8$2,000 - $35,000

Visit Avant

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.