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| The Basics | A fresh start on credit -- without bankruptcy
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Your creditors can reset the clock on your past-due accounts, wiping out the record of missed and late payments -- if you're willing to do your part, too.
By Bankrate.com
For a consumer with heavy debt woes, it's a welcome lifeline.
A creditor agrees to re-age your past-due account and presto, your overdue credit card account gets zapped back to current.
"It's a new life, in essence, for that account," says Jalona Meador, manager of account management at Consumer Credit Counseling Service of Greater Atlanta. "It's starting the clock over."
In effect, that's what re-aging does -- allow you to start the clock over. Say you're three months late on your credit card payments. If the creditor agrees to re-age your account, those three months are wiped out. Missed payments are forgiven. Late fees stop. You still owe the same amount of money, but you are no longer delinquent.
You get a fresh start and your lender has one less delinquency to report.
Getting a bright, shiny current status on an account is a great opportunity, but it's not something creditors give out lightly. Federal regulators have seen to that.
Re-aging guidelines
In June 2000, the Federal Financial Institutions Examination Council set down new guidelines for issuers to follow when re-aging consumer credit card accounts. To be considered for re-aging:- The borrower should demonstrate a renewed willingness and ability to pay.
- The credit card account should be at least nine months old.
- The borrower should have made at least three consecutive minimum monthly payments or the equivalent sum.
And there's more. Federal regulators also placed limits on the number of times an account could be re-aged.
A creditor may re-age an account only once in a 12-month period and twice in a five-year period for open-ended accounts such as credit cards.
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A creditor may also re-age a past-due account if you agree to enter a debt-workout program or debt-management plan. This revised payment plan could be worked out between you and your creditor, or it could be negotiated with the help of a credit-counseling service or a debt-management company.
A creditor may only re-age an account in a workout program once every five years.
"We're trying not to be unduly harsh on consumers, but we want banks to accurately reflect delinquencies on their books," says David Adkins, a supervisory financial analyst at the Federal Reserve Board.
And creditors can be even more selective and conservative when re-aging accounts if they wish.
"The creditors can say, 'I don't deal at all,'" says Paul Smith, a senior counsel at the American Bankers Association. "They don't have to re-age at all."
When to take your shot
Some creditors only give you one shot at re-aging. And that's why it's so important to make the most of a re-aging opportunity.
Start by taking a good, hard look at your finances. Will you honestly be able to make on-time credit card payments going forward? If so, how much will you be able to pay each month?
If you can't stick with the payments, there's little use in re-aging. Why work so hard to bring an account current if you're only going to fall behind again in a few months?
"You don't really want to agree to this if you can't handle the payments," says David Gelinas, president of Family Debt Arbitration and Counseling Services in Candia, N.H.
"Why bother if you can't stick with it? Because you're going to be back in the same situation."
And if your creditor won't give you another chance to re-age, the only way to bring your account current is to pay every last penny you owe. Lots of folks can't afford to do that, especially if they're being charged $29 late fees every month.
If you're truly committed to making on-time payments going forward, feel free to contact your creditor and ask about curing or re-aging programs. Briefly explain why you fell behind on payments and why you'll be able to pay on time from now on.
Document the details
If a creditor agrees to re-age an account, ask them to confirm the details in writing.
"I can't tell you how many times I've talked to consumers who were promised something by creditors that never came to pass," Gelinas says. "You hope to get it in writing so you'll have something to show if it isn't fixed."
If your card company won't put the details of your re-aging program in writing, do it yourself. Keep a record of the conversation and send a copy to your credit card company.
Ask a customer service rep for the name and mailing address of a supervisor. Send off the letter and then focus on holding up your end of the bargain by making those payments.
You'll want to be just as careful when re-aging a credit card account through a debt-management plan with a debt counselor or debt-management company.
When you enroll in a debt-management program, you write a monthly check to the credit-counseling agency. The agency pays your creditors. In a typical debt-management program, a card issuer will charge a lower interest rate, stop charging late fees and re-age the account, making the account current.
Only sign on for a debt-management plan with a company you know and trust.
A slew of credit-counseling and debt-consolidation companies looking to make a quick buck by preying on stressed-out, financially vulnerable consumers have opened shop. Some companies are guilty of shoddy service and sky-high fees. Others are out-and-out scams.
The last thing you want to do is blow your chance at re-aging by agreeing to an ill-advised debt management plan or doing business with a company that's not on the up and up.
-- By Lucy Lazarony
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MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.
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