It is no secret that the credit card industry is currently having a hard time keeping their finances afloat. The economic crash and the resulting rapid increase in credit card delinquencies and write offs caught the credit companies highly exposed and, as a result many found themselves in the brink of a financial collapse. A timely bailout from the U.S. government has kept most of the major credit card companies afloat. However, the credit card crisis still remains and, as unemployment continues to grow and the economy remains practically stagnant, credit card companies are going to need more than just a government bailout.
The biggest problem for credit card companies right now are unpaid debts. A Nilson report from April 2009 puts outstanding credit card debt at $972 billion by the end of 2008, just a few digits away from hitting a trillion dollars. The report also states that about 15% of American consumers had been late in making their credit card payments and 8% had not paid their debts at all. The resulting rise in toxic assets and write offs ultimately caused the current credit crunch.
Credit card companies, when they issue credits, get to write those credits as assets in their books. However, when it comes to delinquent balances, credit card companies begin to worry when the missed balance payments approach six months. This is because, by regulation, once a credit balance surpasses six months, credit card companies are forced to write the balance off. This does not mean that the debt is forgiven, the company can and will do their best to collect the debt. However, it has basically become a loss for the credit company when it is delinquent for that long.
Obviously, credit card companies would do everything to avoid having a debt reach or exceed six months of non payment. With the current credit crisis, keeping away from write offs becomes doubly important. Because of this, credit cardholders having credit card debt problems may be in for quite a surprise.
Due to the high number of write offs that credit card companies are facing, a majority of credit card companies are now allowing their customers to pay off their debts at a fraction of the original amount. Reports have come in of credit cardholders getting their debts forgiven by paying just 50%, or even less, of their original debt. All credit cardholders have to do is to contact their creditors and make an offer. Some companies are even making the offers themselves.
As great as the deal sounds, there is still something credit cardholders need to be wary of. Credit cardholders who enter into these kinds of deals will get hit hard on their credit scores.