New ‘hardship’ debt management plan created, with lower payments
By Jeremy M. Simon

Ten of the largest U.S. credit card issuers have agreed to help struggling customers repay their debt. The National Foundation for Credit Counseling (NFCC) announced this change.

In 2008, the NFCC asked lenders to lower the cost of debt repayment programs. These programs, called debt management plans (DMPs), help people create structured plans to repay their balances over time.

Major companies like American Express, Bank of America, Capital One, Chase, Citi, Discover, GE Money, HSBC, U.S. Bank, and Wells Fargo support this initiative.

What Is Changing in Debt Management Plans

The new plan introduces a second type of repayment option. This option targets people facing serious financial problems.

The updated system lowers monthly payments and makes repayment more manageable. It also helps more people qualify for these programs.

In the past, many borrowers could not join DMPs because their income was too low. As a result, some people saw bankruptcy as their only option.

Lower Monthly Payments for Borrowers

The new plan sets lower minimum payments based on the borrower’s situation:

• Hardship cases (job loss or financial crisis): minimum payment is 1.75% of the balance

• Other borrowers: minimum payment is 2% of the balance

Earlier, payments could reach as high as 3%.

For example:

• A hardship borrower with $20,000 debt pays about $350 per month

• Earlier, the payment could go up to $600

• Other borrowers may pay around $400 monthly

This change makes repayment more realistic for many families.

Rising Debt and Delinquencies

Credit card debt continues to grow across the country. Many borrowers struggle to keep up with payments.

Lenders also report higher losses. For example, Capital One reported a charge-off rate of 9.33% in March, which increased from the previous month.

A charge-off means the lender no longer expects to collect that debt.

Because of this trend, both lenders and consumers need better solutions.

Why This Plan Helps Consumers

The new DMP structure focuses on affordability. Lower payments allow borrowers to stay in the program longer and avoid default.

The plan also encourages people to save money. Earlier programs required borrowers to use all extra income to repay debt.

Now, borrowers can build a small emergency fund while paying off their balances. This step can help them avoid falling back into debt.

Benefits for Lenders and Borrowers

The NFCC believes this plan benefits both sides.

• Borrowers get lower payments and better support

• Lenders recover more money over time

The organization estimates that thousands of new borrowers will join DMPs each year. These plans could add $677 million in managed debt annually. Lenders may recover around $135 million each year through these programs.

Previous Attempts and New Approach

In 2008, industry groups proposed a different plan. That plan included reducing up to 40% of loan balances and extending repayment over five years.

However, the Office of the Comptroller of the Currency rejected that proposal.

The new plan takes a simpler approach. It focuses on lower payments instead of reducing the total debt amount.

How to Get Help with Debt

Borrowers who need help can contact the NFCC. The organization connects people with certified credit counseling agencies.

These agencies guide borrowers through repayment plans and financial decisions.

Experts expect a strong response to this program. Many people want to know if they qualify for these new benefits.