Credit Cards » Credit Card News » A Great Deal For People With Credit Card Debt
Date June 22, 2009

A Great Deal For People With Credit Card Debt

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.

A Great Deal For People With Credit Card DebtThe 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.

Date June 3, 2009

Credit Card Spending Will Never Be The Same

The economic crash caught many American consumers in surprise. However, financial analysts and watchers have said that it was a long time in coming.

For several years, American consumers had gone on a spending spree with their credit cards without really taking into account what the final costs would be. When the financial crash happened, credit industry experts saw that the soaring credit card debt played a large role in it.

Credit Card Spending Will Never Be The SameThe Federal Reserve maintains a survey of the total revolving debt that American consumers carry. Estimates put 90% of this amount to credit card balances. According to their figures, American consumers had $177 billion in revolving debt in September of 1988. 20 years later, in September 2008, figure was $977 billion, an increase of more than five times the 1988 value. However, in the current economical climate, consumers are drastically cutting back and current survey, dating back to last October, show a continuous drop in revolving debt, a rare occurrence.

Originally, credit cards came out as a perk for a bank’s valued customers. However, by the time credit scoring became popular, credit companies began mass marketing credit cards, claiming that they could uniquely tailor the card’s rates and penalties according to the consumer’s financial score. This resulted in a huge expansion of the credit card market. Credit cards became available even to people who had very low credit scores. This will soon come to end once the credit card bill comes into play.

Making credit cards available to people with low credit scores may seem to be a generous move by credit card companies. However, the reality is not so reassuring. People have found out that these credit cards, while seemingly helpful, actually carry high interest rates and high fees which will ultimately bury the cardholder in debt. The credit card bill will put a stop to this by tightening restrictions on how credit cards are issued. It will muzzle many other practices of credit card companies as well.

The credit card industry is, of course not pleased with this. They argue that the credit card bill will cut down their profits. To make up for their losses, they will have to lower available credit, increase initial interest rates and cut down on awards and perks programs. These industry warnings carry little threat to American consumers who are now realizing just how dangerous credit card spending can be. The drop in revolving debt may just be the first indication of a growing change among American consumers’ spending habits. A change which will hopefully lead to smarter, more efficient credit cardholders.

Date May 29, 2009

Credit Card Industry Earnings Likely to Drop

The credit card industry is in an uproar over the legislations in the recently passed credit card bill. The credit card bill is aimed at legislating many credit card industry practices that cardholders see as unfair and deceitful. For the credit card industry, the credit card bill is a disastrous piece of legislation which will destroy their profitability and, according to them, limit the available credit for American consumers.

Credit Card Industry Earnings Likely to DropDuring the past few years, the credit card industry has enjoyed high profitability. Many see that this is coming to an end. Although many see the credit card bill as the main reason for this, it may only be one of many factors.

Although the credit card industry is currently preoccupied with the threat of the credit card bill legislations, it is important to remember that the profitability of the industry was already going down even before talks of the credit card bill surfaced.

With the economic crisis, credit cardholders were unable to keep up with their monthly payments. Whereas many of those who struggled with credit card debt were able to at least keep up with the minimum monthly payments, they were ultimately defaulting when the economic crash came. The increase in credit card debt defaults greatly hurt the credit industry. Aside from that, it also proved wrong one common boast in the credit card industry: their capability to analyze a borrower’s risk and balance with the right interest rate.

Credit cardholder dissatisfaction over high interest rates and large financial fees is also another factor to consider. Considered the root cause of the credit card bill and its popularity, the dissatisfaction of credit cardholders over many of the practices of the credit card industry has been going on for some time. It was only a matter of time before the issue blew up on the credit card industry.

Now, with the credit card bill in place, credit cardholders are going to get the changes that they have been clamoring for. Unfortunately, many of these changes are going to hurt the credit card companies. The legislations on full disclosure of agreements and restrictions on interest hikes and financial fees will hurt the credit card industry the most.

In the past, the credit card industry has profited greatly from credit cardholders who were unable to pay off their monthly bills but did not default, only paying off penalty fees. The impact is hard to calculate, given the credit card industry’s reluctance to release any figures. Many, however, consider the amount to be quite high.

The credit card controversies, coupled with the economic crisis, have also given American consumers a crash course on financial responsibility. Many of them are going to be more careful with their credit card purchases, limiting credit card industry’s previously large profits from subprime borrowers.