Characteristics of rewards-focused creditors
A rewards-focused creditor is a credit card company that usually offers better-than-average rewards and benefits for their consumers. These rewards are often based on points accumulated for purchases, which can then be redeemed for cash back, travel, merchandise, and more. Read more about different types of rewards credit cards. Unfortunately, the added benefits from rewards-focused creditors often come at the cost of poor internal customer service. The interest rate for rewards-focused credit cards can range anywhere from 17-26%.
Rewards-focused creditors and delinquency
Different types of creditors vary in the way they approach delinquency, which is when a borrower has ceased payments toward a debt. Delinquency can lead to many negative consequences, including a damaged credit report, inability to take out future loans (including a mortgage), and possible loss of collateral or assets.
A few key characteristics for rewards-focused creditors dealing with delinquency include:
- The internal debt collection department is small, and negotiations are difficult.
- Settlement percentages depend on the bank and/or collection agency.
- They may send accounts to debt collectors after just 30 days.
If you have a delinquent loan from a rewards-focused creditor, negotiating with them directly can be difficult. Rewards-focused credit companies do not typically have robust recovery or customer service departments to help consumers get back on track or resolve debt through settlement. Instead, they have a tendency to send delinquent accounts to debt collectors early—sometimes after just one to two months of nonpayment. In comparison, most other types of creditors have an internal department you can connect with for at least the first three to six months of nonpayment.
A phone call to the creditor’s customer service line about a reduced monthly payment plan is still worth the effort. These hardship plans are usually granted for a limited period of time that can last from several months to a year. Infrequently, hardship plans are offered for the life of a delinquent balance, but these agreements are difficult to obtain. If a long-term reduced payment plan is your goal, it may be beneficial to work with a non-profit credit counseling agency. The agency works to consolidate all delinquent accounts into a single, reduced monthly payment. Particularly when working with rewards-focused creditors, a credit counseling agency may be more successful in reaching a debt settlement agreement.
Typically, the lowest settlement installment amount a rewards-focused creditor will accept is your debt balance divided by 60, which equates to an interest rate of almost zero. Consider whether you can afford to pay 60 months of your balance split into payments; If you can’t afford the first payment, then do not commit to a payment plan. Rewards-focused creditors are known for quickly sending delinquent accounts to collection agencies rather than performing their own, internal collections. A collection agency is more likely to settle for less than your balance, depending on the agency that receives the account.
If the collection agency has a history of offering settlement rates as low as 40%, that should be your target for negotiations. If the agency does not typically offer less than a 50% settlement rate—which is often true for debt collection attorneys—then make that your goal for negotiations instead. Before becoming involved with any collection agency negotiations, make sure you are confident in your ability to fund any offer they extend. The goal of debt collectors is to collect as much money as possible for both the issuing creditor and themselves, but you also need to try to save as much money as possible. Negotiate terms that are possible for you to meet, and don’t be afraid to pick up the phone and see what your rewards-focused creditor or debt collector is willing to offer.
Risks and benefits of working with rewards-focused creditors
Obtaining a loan from a rewards-focused creditor can be worthwhile due to rewards and benefits not offered by other types of creditors. The trade-off is typically seen in the customer service department of the rewards-focused creditor, which tends to be small and inflexible.
These banks are also more likely to sue than the average institutional creditor, which means that it’s important to strategize resolving your delinquent debt as quickly as possible. If you are already dealing with an attorney from a rewards-focused creditor and have not been sued, be aware that it could happen soon. If you have multiple delinquent accounts, it may be beneficial to prioritize resolving the rewards-focused debt first, in an effort to avoid dealing with collections in the court system.
If you need help connecting with your creditors, Kredit can help.