Creditors may agree to ease loan terms when workers need the help to survive a jobless spell.
Sounds simple -- seek and ye may receive. And, lenders routinely encourage contact at the first sign of trouble. But credit experts warn: Have a plan before you plea.
The bill pile
Some workers are entering unemployment with savings, little or no debt, and a solid credit record. Others begin their layoff with less enviable positions on one or all three fronts.
Begin by plotting how long your resources will cover your basic living expenses -- mortgage or rent, food, transportation, food, utilities, insurance.
Consumer credit advocates don't include credit card bills in the barebones expense category. "You prioritize by paying living expenses first, then secured credit accounts, like your auto loan, and then credit cards," says Gerri Detweiler, credit adviser for credit.com.
How deep the bill pile and how your resources measure up against it determine your strategy for asking for relief.
Help! Help!
For some, it's immediately apparent that they won't be able to meet even the mortgage payment within a month or two.
As soon as problems loom, call the lender and explain the job loss, says Ben Windust, Wells Fargo Home Mortgage senior vice president. But he concedes: "I can't give a blanket answer on what the lender will do."
When laid-off workers call before they've missed a payment, they typically don't have to provide documentation about their job loss. It's possible to strike a verbal agreement to ease payments for a period, with payback later when the borrower is working again, says Jon Meade, Fifth Third Bancorp vice president. It's when payments are already missed that more documentation is needed for investors who may hold the mortgage note.
Although lenders recommend early contact, Steve Rhode, president of the Myvesta Foundation, a money advisory nonprofit, doesn't hold out much hope that lenders will immediately offer a reprieve. "You have to fall within their policies," he says, and adds that the newly unemployed may not fit into policies that are already crowded with how to handle homeowners nearing foreclosure.
Still, the mounting foreclosures is prompting more lenders to action, counters Windust.
Trouble watch
Keep monitoring how your resources are holding out against your bills, with an eye to how likely it is you'll land another job soon.
"As long as you have the money to pay the minimum on credit cards, continue paying, and there's no real credit damage," says Detweiler.
While not advocating ignoring bills, Rhode warns against misallocating scarce cash: "You have to set a line in the sand, whereby if you don't get employed by a certain date, you have to go to plan B. The last thing you want to do is raid savings to pay credit card bills when you need it to pay food and shelter."
Credit policy
Just as with the mortgage, consumers can call their credit card issuer if they can't pay minimums. But, here too, there's no guarantee that card issuers will acquiesce and lessen your load.
Jobless workers who need help until they land another position are distinct from borrowers who've overextended themselves and have sky-high credit card tabs. Ask for a "hardship" program, where your payments are temporarily reduced or suspended, says Detweiler.
But be advised: Credit issuers may see you as riskier, and lower your credit limits.
Third party?
Especially when households hold multiple credit card accounts, handing over the negotiating to a nonprofit credit counseling agency can be easier.
Since counseling is now required before anyone declares bankruptcy, the U.S. Justice Department's Web site lists reputable agencies, which charge a minimal fee.
Rhode, however, worries that a credit counselor could create a budget too heavy on credit card payments, and "that wouldn't be sustainable if you have a long job loss."
Many credit counseling firms are geared to negotiating for overextended borrowers, not jobless workers, says Detweiler. "It's up to you to make sure your priority bills are paid first. If they set up a budget that seems too high, you shouldn't do it."
Strong negotiating stance
When you have ample reserves to pay credit card bills, call creditors, but not to explain your layoff, says Detweiler.
"Say another card company is offering you a better rate, and you will transfer unless they give you a break." But creditors typically agree to cut rates only about half the time, says Detweiler.
Still, this approach gives you the strong negotiating position, and card issuers won't cut your credit limit as they might when you call for forbearance because you can't make the minimums.
School rules
For parents who hold federally backed PLUS loans taken to pay for their child's college, or young adults paying back federal Stafford loans, getting a reprieve on this obligation may prove relatively easy. "There's a policy (for jobless borrowers) on these federal loans, which are the most common (college loans)," says Kal Chany, author of "Paying for College Without Going Broke.
" Here, calling before payments are missed -- and your credit takes a hit -- is a no-lose proposition, says Chany.
