As the economic recession continues, credit cardholders are getting weighed down by credit card debt more and more. Rising interest rates and fees threaten to make it heavier still. However, a curious budding practice among credit card companies may be the answer to credit cardholders' problems.
While credit cardholders are worrying about their individual credit card debts, credit card companies are also in dire straits financially themselves. In March, revolving credit was recorded at a total amount of $939.6 billion. Revolving credit is often used as a measure of credit card debt as it is a close approximation of the debt value. According to the Federal Reserve, during the first quarter of the year, the total credit card debts that credit companies had, 6.5% were debts that were 30 days overdue, at least. The Federal Reserve first began following this particular data in 1991 and, since that time, the value from the first quarter was the highest that they ever encountered. The write offs that credit card companies were also at a peak.
With the passage of a few months, the numbers have hardly gotten better which has credit card companies worried. Furthermore, regulations dictate that a credit card balance that has been six months delinquent will have its value reduced to zero in the credit card company's books. The thinking is that if the borrower is unable to pay up to that point, the probabilities are that the debt will never be repaid.
Faced with high toxic assets and losing the entire debt to a write off, credit card companies are doing the unexpected, they are accepting debt payments 50% or lower than the original debt to have the debt forgiven.
According to Credit.com founder Adam K. Levin, creditors are willing accept a small percentage of the debt payment rather than get nothing in the end. Thus, credit cardholders with large debts that cannot pay their debts completely have the opportunity to offer their credit company payment which is only a percentage of the original debt in order to have their debts completely removed.
The situation is such that credit cardholders who call up their creditors can have these kinds of offered accepted directly by the customer support person they are talking to without consultation of their supervisors. In fact, some credit card companies are actually doing the calling themselves and offering similar deals to people with unpaid debts.
The trade off of this seemingly fantastic kind of deal is that the credit cardholders' credit records will have a large black mark on it. Still, compared to the prospect of carrying heavy debt indefinitely, the trade off seems worth it.