Debt rescheduling

I. Debt rescheduling

Debt rescheduling refers to changing the terms of an existing credit product, usually to help struggling borrowers get into a manageable and sustainable repayment plan. Rescheduling often lowers payment amounts or frequency, meaning the debt will be paid more gradually.

Rescheduling is used to avoid worse outcomes, like defaults or bankruptcy, or simply to give the borrower some leeway as they repay the debt. It benefits borrowers by giving them greater flexibility or control over repayment, and still helps credit providers in the long run, as they can keep customers engaged and build long-term loyalty.

Alongside debt rescheduling, credit providers might also offer forbearance or hardship programs, all as part of their delinquency management strategy.

What’s the difference between rescheduling and refinancing debt?

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When inquiring about debt relief programs, borrowers may conflate rescheduling with refinancing or debt consolidation. Although these are interrelated concepts, each is a distinct approach to altering credit agreements.

• Debt rescheduling refers to changing an account’s existing structure and payment schedule.
• Debt refinancing involves moving the balance into an entirely new account, and may be preferable if the previous terms are well beyond the borrower’s current financial means.
• Debt consolidation is refinancing for multiple accounts, pulling their disparate balances, interest rates, and payment schedules into a single product, which simplifies both servicing and repayment.

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Another distinction is the provider: Whereas rescheduling typically refers to the original lender reworking the account’s terms, refinancing might involve a third-party purchasing the original debt to create a new account. 

II. Key players in debt rescheduling

At bare minimum, debt rescheduling and refinancing involves two parties—the borrower and their credit provider—but others could be involved as well.

Borrowers interested in debt rescheduling or refinancing might start by approaching their original lender. If they provide those options in-house or through a partner, it will generally be easier for the borrower to handle their refinancing through the same provider. If those options are unavailable, however, they may turn to a third-party debt relief or consolidation company.

Alternatively, if the rescheduling is the result of a bankruptcy, the credit provider may also have to deal with the courts (or at least PACER, the filing system for bankruptcy courts), as well as the borrower’s attorneys. (In these cases, it’s not uncommon for the borrower to request all communications go through their attorney rather than reaching out to them directly.)

III. Managing Rescheduled Debt in Portfolios

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For credit providers, debt rescheduling poses several logistical questions. In each case, how they implement and manage their debt rescheduling process will require both decisions as to what’s the best move for their portfolio, as well as technical considerations of what is feasible with their credit management software.

• Rescheduling options. Credit providers first need to determine what rescheduling tools are at their disposal, and which are most appropriate for their portfolio and products. For example, short-term loans might be better served by a single, lump sum payment that waives some interest and fees, rather than stretching the balance into several payments over weeks or months. But that lump-sum payoff would be unfeasible for any long-term accounts. Options might be further limited by technological constraints: modern platforms offer greater flexibility, but older systems might lock you into preset payment frequencies.
• Qualification and approval process. Once they have rescheduling options paired to each product, credit providers need to determine when and how borrowers will qualify for them. Here, they need to strike a balance between the ultimate goal for debt rescheduling (keeping borrowers engaged and strengthening relationships with them) against the practical, short-term concerns of their own cash flow needs and bottom line.
• Streamlining and automation. Modern credit platforms facilitate debt rescheduling (as well as refinancing, restructuring, and hardship programs) with streamlining and automation. For instance, a system might automatically inform qualified borrowers about rescheduling options, and agent UI tools like a ticketing system and process walkthroughs can simplify manual processes.
• Rescheduling data and analytics. Credit providers also need data insights to determine how effective their rescheduling efforts are. Many modern systems have customizable portfolio attributions, making it easy to track which accounts used which rescheduling options. Credit providers can use that data to perform A/B testing, refining their rescheduling process to maximize retention and revenue.

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IV. Bottom Line

Debt rescheduling can be a valuable tool in your portfolio management strategy, helping you keep borrowers engaged throughout financial hardships, and ultimately repaying their balance in full. 

But not every lending platform can support debt rescheduling, from editing existing accounts to streamlining or automating the process, to analyzing macro-level data on rescheduling and portfolio performance.

If you’re looking to improve your portfolio management and debt rescheduling process, let’s chat. We’d love to hear what rescheduling and hardship programs you have in mind, and show you how LoanPro can make them happen.