Closing the card can hurt your score by changing your debt-to-credit ratio, but as the debt is paid off that will return to more acceptable levels anyway.

Being able to make payments on time may be easier with a lower APR, which can boost the part of your score affected by your payment history.

Closing the account can also impact your score if it's one of the oldest accounts you have open with a creditor.

However, having the debt hanging over your head can be a huge burden- both financially and emotionally.

I recommend checking with your local consumer credit counseling agency (check with the Better Business Bureau or National Foundation for Credit Counseling to find one that's credible).

If you're having trouble making ends meet they provide general financial counseling that can point out some weak spots in your financial structure and work out a plan of action for getting back on track with your debt, and some agencies also provide housing counseling for those of you that are behind or falling behind with mortgage or rent payments. (You can check with HUD for agencies that are certified to provide housing counseling.)

They also offer debt management solutions. These basically entail hardship plans like the one Chase offered in this situation, but they also include other unsecured debt and are based off of your net income and living expenses as well. Getting fees like late, over-limit and annual fees are a plus, too, and if you have disputes with the creditor agencies have staff on hand that can mediate things and help resolve the situation on your behalf.

Of course I'm pretty biased. I work as a customer service rep at a credit counseling agency. However, we're a non-profit and I really believe in what we're doing for our clients, and there are many other similar agencies around the country that I know could provide some assistance and stability for a lot of people out there who might not have as tight a grip on their finances as they would like.

@junkyardmonkie: WOW
I'm impressed.

@plamoni: Agreed.

1) Don't listen to these people who are calling you dumb or irresponsible. Don't feel guilty. These things happen, and they're happening to a lot of people in our country right now. You need to figure out what works best for YOUR situation and what YOU value.

2) If you close this card, it's more than likely going to be permanently closed without an option to reopen (so there's no sharp ups and downs with your FICO & also for security reasons). When you close your card, your debt to limit ratio goes up.

For example, say you have 3 cards, each with a limit of $2,000 (totaling $6000 of spendable limits) You have spent $4,000 across the three, or your debt to limit ratio is a little over 66%. You close one card. Your total limits equal $4,000. You've spent $4,000, Your debt to limit ratio is now 100%. Balances on closed cards are still calculated into your debt to limit ratio, and count as outstanding debt.

This does affect your FICO score, and can look "high risk" to other lenders, including banks that you're paying off your home loan to (if it's not paid off), and they can change the APR as well.

Does that make sense?

3) You have to be able to commit to this plan for the next 5 years. Often times, if a payment is missed or late, that can end the plan in its tracks. Are you 110% sure you can commit to this for the next 5 years? Would you be able to pay more? Remember - the more you pay, the sooner it's paid off, and the less in interest you'll pay!

4) Would you plan on using this card in the future? If not, close it. Often times when credit card companies offer out something like this, it is offered to people with large balances, inconsistent payments, or high-risk delinquencies. They do not offer this to everyone. Often times, i'd get people on the line who just wanted a lower APR. I'd deny them on the spot since they were making triple the minimum due and had never been late. This is for people who truly need help.

So, Amy, ask yourself these questions. Call Chase and make sure to get all the terms & conditions of the plan. If you do decide to go for the plan, ask for a confirmation letter, confirmation number, and the name of the person you spoke to. In all honesty, this plan sounds like it would work well for you, and I would go for it if I were you!

Take care!

@MaelstromRider: I see. Kind of a Catch 22 then. Self inflicted of course.

What statute forces Chase to take the Tarp if they didn't need it? And they still benefit from the TALF, quantitative easing, and ZIRP. They are a ward of the state, whatever the acronym. And they shouldn't be. They should either be a healthy bank that lends appropriately, or a bankrupt.

I don't understand a moral code that compels a debtor to burden himself to pay Jamie Dimon's multimillion salary. And bonus.

Credit card is unsecured. If I had $100k in unsecured debt on my shoulders, I'd seriously consider doing what the guy on this link did:

[www.businessinsider.com]

"Told wfc "to kiss my ass" on a $18000 credit card balance. Why should they have all the fun? I dont give a damn about fico. It felt good."

Any opportunity to get out from under a Chase card should be utilized. Chase bumped my interest to 29.99% just because they acquired my former credit card company and then consistently refused to lower the rate. When I had paid the card down to zero I called again to request an APR reduction, all they offered me were some "bonus points". I then took great pleasure in reducing my Chase card to little shards of plastic. I will not miss those bloodsuckers even one little tiny bit.

If your FICO changes as a result of this action, many credit cards will adjust their terms based on this (I know - it happened to my partner). The result could be higher APRs on the other cards, changed card limits resulting in fees for being over limit, etc. This could lead to more onerous entries on your FICO and it changing even more - causing more events. A vicious cycle ensues.

Again, for peace of mind - before accepting the deal - check out what happens with the other cards. Sure, you may save on the change to a 6% APR - but it could so adversely affect your other cards that the saving may be eaten up in fees and increased payments to the other cards.

Higher APR on cards adjusting for FICO score change: LOSS
Fees for overlimit based on adjusting limit for FICO score change: LOSS
FICO score continuing to change as these items accrue on your score : MAJOR LOSS

Again, read the fine print.

Now, here's another possibility:

Amy's FICO drops.

Her other cards readjusts APR upward and credit limit downward. She's now paying more for the other cards. thus her savings on the one for 6% APR now is eaten up by the other cards for increased payments, fees, etc. Again, look at your fine print and see what it says when this (modified FICO score) happens!

Sorry - but this doesn't make sense if a changing FICO score adversely affects your other cards. Check out the policy first of the other cards - if they readjust and she ends up with fees, higher APRs and increased payments on the others as a result - then closing the card could end up making her situation even worse.

My partner had this happen to him - he closed a card, caused his FICO score to change, other cards changed - and he began getting additional fees, increased APRs, etc... Not a good time to be sure...

With the new comments rules, is it ok to call you an idiot? If not, I wont. Chase isnt a TARP bank. They were one of the banks that were forced to take it. Then they already paid it back over a month ago, along with 800 million in interest.

So you're essentially telling a person to hide from their responsibilities, and to make sure they're not getting sued, and then to sue anybody who claims they owe money? Also, the statute of limitations is at least 7 years, not four.

Also, if these people welch on their debt, how do you think the bank makes up the losses? By charging more fees. With the amount of money it sounds like these people owe, they're not gonna just walk away, it'll follow them around for years.

Either way OP, hope it works out. Just dont listen to this guy.

@3skr1mad0r: That's not always that easy to do. If your finances are so bad that you need a consolidation loan, there's the risk that your credit union won't touch you either. It's basically an unsecured line of credit, as far as they're concerned, unless they have a specific debt management program.

Just stop paying. Change your phone numbers. Read every collection letter that you get to make sure it's not a lawsuit, then throw it out. After the debt goes out of statute in four years, sue anybody who tries to say anything on your credit report. Start fresh in seven years, hopefully as wiser people who live in cash.

The banks can't catch every deadbeat. They probably won't catch even 1 in 10, since the taxpayer is guaranteeing the loss. Just walk.

CALL all of your issuers and push for a hardship plan.

hv n dbt, fck ll f y wh d.

Just sayin'.

Medical bills.
Divorce.
Automotive emergency.
Unavoidable crisis.

These things HAPPEN. All the time. To all kinds of people. We don't know how they ran up the debt. It could have been that they were, indeed, "horribly irresponsible." The point is, though, that they're trying to pay it off. So get down off your high horse. They're trying to do the right thing now.

So I called WaMu/Chase and attempted to negotiate the rate, but none of the CSRs would budge, even the ones who I think were qualified to give me a "no" answer. (Overall, WaMu/Chase is a pretty scummy bank.)

So I closed the card before the rate increase hit. My credit score went down a couple ticks, but so what? It will recover, and the "savings" far outweighs the credit score dip.

In fact, this happened with our Target-branded Visa card as well...they increased the APR from about 12% to 28%. Canceled that card as well. I think my FICO went down 10 points in the three months or so when this all took place but after paying down some other debts, I've reclaimed that 10 points and more.

Another option if you don't want to close the card outright is to seek out a credit union that has a reasonable APR offer for their lines of credit. Right now, PSECU in Pennsylvania is offering 3.9% APR on balance transfers to their Visa card until December 2010, at which time the rate increases to their normal 9.9% rate.

makes a big difference.

What about a consolidation loan? Pay them all off at a lower rate with a Credit Union. 1 payment to worry about and your cards can remain open to show available credit. Just be sure to cut up all of those cards so you don't use them anymore.

I'm actually psyched about this. I'm going to call Chase and request the same thing. I have 2 cards with them that are useless anyway because they keep lowering the credit limit to $300 over the available balance.

Definitely take the deal, but DON'T use this as an opportunity to just cut back on your monthly payments. If you were paying $200 on this card, and $200 on the other, and now only have to pay $75 on this card, start paying $325 on the other.

I agree. While I applaud her current efforts to pay down debt, Amy and her husband were horribly irresponsible with their credit cards and created this mess. Any ding in their FICO score will be well worth it for the interest savings. It is also one less card for Amy and family to run up again in the future.

I hope they have taken pause here and realized once they clean up this mess to never get in it again.

Dear OP, When we worked our debt snowball and paid off $55,500 (half of that was student loans) we ended up closing all our old credit cards in the process for different reasons. After we were done with the debt snowball I checked my FICO score a few months later and it was above 800. I later opened a new credit card because I needed it for business and travel. I would suggest that if you can't keep up with your current debt load the late payments will do more damage to your credit score than closing your cards as you pay them off.

Good luck!

@TCama: I agree - its a different game now. I had 0 debt but had about $50k in available credit. With a high credit score, my available credit has dropped to $30k and just Monday I received notice that Chase was canceling one of my cards.

The good news is that I highly doubt college students are going to be able to do what I did - run up $25k in credit card debt while in school and no real income.

The only difference that would matter is that if the debt came from uncontrolled spending, they will need to work on changing their habits on top of eliminating their debt. But since all their asking about is how to eliminate their debt, then their spending habits are immaterial.

No point in dwelling on how they got where they are. You can't change that. We should be offering our experience to help them get out from under that debt.

As much as I love to respond to my own comments. This is just a small PS on my previous comment. I crunched some numbers and found something very disturbing:

If the OPs plan to make the same payment on their card at 6% as they do at the current rate of 28% and that new interest rate will get them out of debt in 5 years, then at their current rate and payment, they'll NEVER get out of debt.

Here's my process:

Assume a balance of X. To pay off that balance in 5 years (60 payments) at 6% interest, they'd have to make a payment of .0193*X each month. That being the case, in order to maintain a constant balance on a loan with a rate of 28% APR, you would have to pay (.28/12)*X each month (where X is the amount of the loan). That's the same as 0.023X each month. Since .0193X < .023X, then they're currently unable to get out of debt ever.

I'm going to guess that one of two things are happening. Either they are making their new calculations (for the 6% interest rate) based on a smaller monthly payment then they can afford to make, in which case I implore the OPs to make the largest payment they can afford each month. Or they are currently unable to make their minimum monthly payments every month.

That being said, they really need to take the 6% deal. It's the difference between being out of debt in 5 years and being in debt for their entire lives. It doesn't matter what they might do with their credit score. They are in serious trouble.

@zegolf: Assuming it was excessive spending that got them in trouble, instead of perhaps a medical or family emergency.

Even people with health insurance can get into bad medical debt. For example, my father's insurance had $500 hospital co-pays each visit, and he was admitted sometimes twice monthly during the last year of his life, a few days at a time. Also insurance would not cover the hyperbaric treatments he needed to try to save his legs from diabetic complications. By the time he died, my mother was left with several thousand in medical debts. They put the charges on a credit card. Later after he died, she was able to pay off the cards using some of their retirement savings but had some harsh penalties for withdrawing the money.

A woman I work with went into $15,000 debt paying for her mother's wake and funeral. Her mother died very suddenly and unexpectedly at a fairly young age, and had no life insurance. She was extremely upset and wanted to have a nice service for her mother. After she calmed down the reality of the expenses set in and she was terrified. Still, she's not sure she would have done anything differently. She loved her mother and wanted a nice service. Her father was divorced and not around any more, and she was the only adult child. Aunts and Uncles and cousins attended the service and were very sympathetic, but none offered to help pay.

(Personally I have told my husband to cremate me on the cheap when I go, or donate my body to science. However, I understand how a grieving family member would want to have a nice service and wake for their loved one.)

There are so many other examples of how a family can get into debt that do not involve taking vacations they can't afford or buying lots of luxury items.

Yes, many Americans have gotten into debt because they must have granite counters or Viking appliances, or a marble bath and vanity. Or a vacation or luxury car. Those people are idiots. But many others had family emergencies and their debt is not just foolish spending.

It's possible that Amy and her husband would have a slightly higher credit score with the card then without, but their credit will be much better without the debt on it to begin with.

But most importantly I think this is a great opportunity for the debtor to be free of this company's grasp.

If you don't use their cards, they will close the account any way. At least that's what happened to me. A bunch of cards I've had for years, but never used were suddenly all closed, leaving me with just the 2 cards I actually use. The CC companies never bothered to tell me they did this though.

@Coelacanth: Meh, *they're = their. Can't believe I did that!

@Cant_stop_the_rock: If it takes 5 years to pay off the card, I presume they're other credit lines that're open that will be active for many, many years.

The resulting credit score after 5 years will likely remain decent.

I had a 28.75% interest rate with chase and it was also killing me. I called for several (three) months to get my rate lower. They wouldn't budge at first, but then they offered a similar (or the same) program that you are talking about.

The problem is that it is no longer an actual account and you cannot pay online or over the phone. I believe that the options for payment were to have the amount deducted from your account, but to start or to make changes could ONLY be done through snail mail. I think that you might also me able to pay in an actual location as well. I told them "I would not accept a complete inconvenience to me just for a lower interest rate."

I called again the next month and they said, "we can lower it to 25.99%." I told them if that's what i could get then fine.

A week later, I emailed the president or VP (can't remember) at gordon.smith@chase.com and told him the history and that I was trying to make a personal connection with the company by calling and asked not to be treated like a number when it comes to interest rates. I followed up saying I would pay off my debt in three month (a bit of a bluff) and depending on how the company thought about me as a customer would determine whether or not I stayed.

Later that same week, My interest rate was lowered to 11.24% and they retroactively applied it to when I had initially had started calling about the interest rate, giving me a $300 correction.

I hope this helps. You are in the perfect position to email.

The OPs need to realize that the sort of credit tweaking oft described on Consumerist is usually aimed at those who have average credit and want excellent credit. Sort of, "I'm doing everything right, but I only have a 730 credit score," type of tweaking.

When it comes down to it, before you start worrying about how little things like debt to credit ratios and credit history length affect your credit, you need to take care of the big things, like not having late or missed payments and not going into bankruptcy.

In this case, as Spoco noted, they could be saving thousands of dollars in interest payments and reducing their monthly payments by large amounts. The reduction in monthly payments gives them leeway if needed so they can always be sure to make at least the minimum payment on each loan. That's going to have a much greater effect on their credit than whether their oldest account is 2 years old vs 10 years old.

Step 1 should be to get your payments under control.
Step 2 should be to get out of debt.
Step 3 should be worrying about getting your credit score back up to a healthy level.

To the OPs: Whatever you do, concentrate on not going into bankruptcy and not making late payments. Those should be your primary areas of focus. It's really just 2 words: Don't default. Once you've gotten to that point, you can start working out how to best get out of debt quickly and stay out of debt in the future. In this case, the massive interest rate reduction they're offering should be graciously accepted.

I'm in a similar situation with CITI they were willing to stop all penalties and reduced my interest rate to 0% along with closing the card.

The tiny ding to your credit report is vastly outweighed by being able to pay off the card instead of defaulting on it.

@Hil-fish: Yeah, name-calling and dropping the f-bomb, all in one fell swoop! I hope that got it out of our collective system.

@greggen: Exactly. Given some of the attitudes here towards people with debt, I think it's worth repeating reminders that not everyone gets into their situations by going on a shoes-and-plasma-screen-tvs bender. Most people can't build up a sizable cash cushion to protect them from every potential emergency.

We're missing a few important pieces of information that really make this a hard question to answer.

- How long she has had this card
- How many other cards she has, and how long she has had them
- The balance on this and other cards
- What she expects to need credit for in the near future

Since it'll take her 5 years to pay off at 6%, we can probably assume that the balance is high and her savings will be substantial. If this is her oldest credit account, and she doesn't have any other accounts that are nearly as old as this one, the credit hit could also be substantial.

With the information we have, accepting the lower rate seems like the way to go.

I say take the deal. Close the card, and to hell with the potential credit hit. Start paying down your balance as aggressively as you can now, so you have leeway later.

You're welcome.

Look , you're going to have to take the medicine sooner or later and now is as good a time as any . In fact ,with the credit crunch being so widespread , your credit score relative to millions of other people isn't going to change your life too much. In 5 years ,when all of this is in the rear view mirror , LOTS of people's credit won't look so hot. CC issuers will have to adjust their criteria to take this fact into account or lose most of their business. Use this time wehn everything is dogshit to repair ,rebuild and get out from under all that debt. You might like having the card paid off so much that you kick the habit completely and never have to spend another sleepless night wondering if the mighty god FICO really loves you.

Let's play with some real made-up numbers. $10k at 28% racks up $233/month in interest. $10k at 6% costs a comparably small $50/month interest. If they keep paying the same amount they have been, Chase's offer would allow them to reduce their principal by an extra $180/month. Again. Huge win. Take it, take it now.

The OP is right that there's a trust issue with Chase. Solution? Check the wiretap laws and record the conversation when they agree to the deal.

@Hil-fish: I may need to retract that comment...see two threads below this one. Sigh.

But here's my question, what's stopping Chase from increasing that new 6% APR to something higher in say six months or so?

Haven't we been reading just a few weeks ago credit card companies raising rates for really no reason what so ever - oh that's right, their reason is "Because we can."

THANK YOU! I was beginning to feel very lonely here. Glad to see someone else who is willing to give the benefite of a debt as to how the debt was incurred.

I just tend to think we could all be a little more forgiving of people who are trying to pay off their debt and are asking for advice on how best to accomplish that, rather than chiding them for incurring the debt in the first place.

@pecan 3.14159265: Again, they may have learned that lesson. It may not happen again. Having one less card should not hurt them if they have several, but it still doesn't matter how they incurred the debt, they are trying to pay it down now. Water under the bridge.

@TCama: Agree.

@katstermonster: Yeah, the level of snarkiness is lower than usual (huzzah) but people could still stand to be more open-minded.

@Dom655321: So much for my observation that we were far below the usual level of snarkiness. Bravo.

@Hil-fish: Um, I dunno if you've been around here for a while or not, but the comments on this thread are FAR from the usual level of snarkiness (maybe becaus FBC is blocked? muahaha). We're just saying that having credit cards leaves the temptation to use them. Having one less credit card is not a bad thing where debt is involved, regardless of how that debt was incurred.

Also, can I trust a program like this coming from Chase, who could care less about me?

In my opinion, that's the most important question. Since I can't answer it I'll just say that they should get the agreement and any disclosures for the hardship program mailed to them so that they can pour over the fine print instead of agreeing to it over the phone.

There was an article a little while back about how most bankruptcies are caused by medical debt, so I don't know why everyone's back to assuming credit card debt must be a result of being financially irresponsible.

I would go one step further and add your other 11% card into the package. kill two birds with one stone. My guess is once you take the hardship offer, they are going to swoop down and raise the other card to a much higher APR.

@Hil-fish: It's the fact that if you are in so much debt, having access to that much credit only makes you more susceptible to falling into it again. It's like letting recovering alcoholics walk down the wine aisle. Just because they're working toward recovery doesn't mean it's not tempting. The credit cards are there - whether they got into debt through unavoidable circumstance (such as medical issues) or through uncontrolled spending is not the point. It's that the credit was there, allowing the debt to pile up. Keeping the credit there in the future is like allowing that opportunity once again.

Also, she mentions that she and her husband have several credit cards ...and they all have balances on them. Regardless of how they came to be this way, several credit cards all with balances is a big deal. It's significant enough that they can't make minimum payments.

However, if you can't be disciplined with your credit, cut up the cards and take the offer. Best start living off what you can afford in cash each month.

Things might be tough for awhile while you pay down the debt, but as each card goes down to $0, think about the amount you get back and what you can spend it on.

If Amy and her husband are focused on paying down a static debt (say, the result of an accident or medical bills) then getting that balance to the lowest interest rate possible seems like a good plan, regardless of the minor ding the credit report might take. If the debt problem is more fluid, because they are continuing to use plastic when they're already barely treading water, then it might not help.

The sucky part is that once they pay this off in 5 years, they won't have the benefit of the open credit (utilization) for their score. The other downside is that this will be a 100% maxed card every month on their score.

Before completely agreeing, I might check and see if a credit union or a competing card might be willing to take over the balance at a lower rate. If those avenues are not available, then I'd take the devil's deal.

Amy, you and your husband seem like nice people but you aren't the sharpest tools in the shed. If you are REALLY serious about paying down your debt then close the f***ing card and reduce your interest rate. Who cares about your credit score?! It means nothing if you have so much debt you can't afford to buy anything.

Here a little hypothetical scenerio (to piggy back off of spoco) - if you have $5k in debt that's a savings of roughly $1,300 per year, $10k is a savings of $2,600 per year, and $20k is a savings of $5,200 per year!

So what's worse - having your credit score go down 50 points or throwing away thousands of $$ a year?

The bank I worked for had a hardship program in which they would close the account down for 6 mos to a year with a low apr (like 6-7%) until the account was either no longer delinquent or atleast 50% of the bal was reduced by paying a fixed monthly payment that was independent of the APR. At that point the account would open back up. The only damage done here on the credit report is short term to get the account back under control.

I agree. It seems more prudent to reduce their debt and dig themselves out of the hole right now instead of worrying about how closing the card will impact their credit score. With the higher APR, it seems less likely they will repay the debt especially if there were unexpected events in their lives such as unemployment and illness.

I don't see why this is a dilemma. If you are having problems you need to get on a written budget and live within your means. The offer by the CC company is a not an "an indecent proposal".

With that much debt does it really matter what your credit score is? Why take out another loan to pay for the poor spending to begin with? That has worked wonderfully so far...

But, jeez, Phil, we don't know any details about why they have such high balances, so was the snarky, judgmental postscript necessary? They are trying to do the right thing now by paying off their debt. Benefit of a doubt and all that.

Since it's going to take half a decade to pay off all the debt, she might as well take the hardship program and pay it off. The damage to her credit in the long run isn't nearly as bad as it would be if she kept paying at 28% and took even longer to pay off her debt, and had to pay more money because of the higher interest.

Close the card. And I agree: it doesn't seem as if she and her husband should have access to the credit in the future anyway. I'm trying not to make presumptions about their lifestyle, but anyone in such debt that it takes 5 years to rid should probably have less access to credit in the future.

I'm not sure how it'll even out as far as credit scores go, but I'll go ahead and say take the deal. Paying off the card is probably a better bet in the end, not only in terms of credit score, but also in the INability to keep using that card and driving up that balance.

Its only a dilemma if you are using the credit cards for cash flow. If its going to take 5 years to pay it off, the balance is probably high. Let's say its $10,000 - that would save $2,200 a year. Its a no-brainer.