Credit Cards » Credit Card News » Debt Settlement, A Two Edged Blade
Date June 26, 2009

Debt Settlement, A Two Edged Blade

Understandably, American consumers are now scrambling for every available means of maintaining their finances. A large debt is a huge drain on the monthly income and is therefore something which should be settled as quickly as possible. Skipping on debt payment is an option and, indeed many consumers carrying debts too big to handle are opting for it. However, in the long run, it is a disastrous solution. The best way to get rid of debt is to pay it off. The problem is that, in the current economy, paying off debts can drain away all of a month’s pay.

Debt Settlement, A Two Edged BladeThis is why debt settlement is a fast becoming popular way of getting out of debt. The popularity of debt settlement is caused in a big way by the high growth of debt settlement companies. Debt settlement companies are financial entities which try to entice debt laden credit card holders by promising to settle their debts for a fraction of the original amount. These companies often make it sound as if debt settlement is an easy and safe way to settle your debts. Unfortunately, nothing could be further from the truth.

Debt settlement is a risky affair. If you use a debt settlement company, there is a large probability that you will get worse off than you were originally. Debt settlement companies also offer a service which you can very well do on your own without having to pay large fees.

While debt settlement companies are risky, debt settlement itself is also something that no one should take lightly. True, because of the economic crisis, credit card companies are more than willing to settle for a lower amount in order to forgive a debt. However, when a credit card company does this, they are likely to stop trusting you as a borrower.

The biggest blow that you’ll get when you go for a debt settlement is in your credit score. Your credit score shows how good of a borrower you are. When you get loans, your credit score is usually the first thing that a creditor will check. A low credit score will lower your chances of getting the loan approved. This is why the effect of a debt settlement agreement can be very dangerous for you. Debt settlement will put a black mark on your credit score which will stay there for seven years. It will have a huge negative effect on your score so that you will find it difficult to secure a loan in the future.

To avoid ruining your credit score, review every available solution first before you settle on debt settlement. There are many credit counseling groups which can help you do this. It is important to inform yourself first before you make a decision.

Date May 28, 2009

Dodd Sees More Work Ahead after Credit Card Bill Passes

Last Friday afternoon, President Barack Obama and key personalities from congress gathered in the White House for the signing of the credit card bill.

Dodd Sees More Work Ahead after Credit Card Bill PassesThe credit card bill is a controversial bill that aims to correct what many see to be the fraudulent and deceptive practices of the credit industry. Amidst the outcry of overburdened credit cardholders, the President and the Congress responded with a bill that curtails arbitrary interest rate increases, protects cardholders paying off debts, and demands more transparency from credit card companies, especially with their credit card agreements.

The bill has its share of supporters and detractors. Credit cardholders, the main group to benefit from the legislation, are excited to see what the bill can do for them. However, many see that more could have been done with the bill. The credit industry, the target of the bill’s legislation, has been adamant that the passing of the bill will be detrimental – not only to the credit industry but to consumers themselves.

The President and the Congress have deliberated and seen to it that the credit card bill provides a middle ground for both sides of the argument. During the signing, President Obama stressed the point saying, “We’re not going to give people a free pass. We expect consumers to live within their means and pay what they owe. But we also expect financial institutions to act with the same sense of responsibility that the American people aspire to in their own lives.”

Sen. Chris Dodd called the credit card bill “the strongest piece of consumer legislation that has been passed in Washington in a decade”. However, he also said that there is still a lot of work to do with regarding unfair credit card industry practices.

During a conference call last Friday, Sen. Dodd said that two major problem areas in credit industry practices still need to be addressed: unlimited interest rates and high merchant fees. The senator stated that there is still a need to create some kind of legislation that will put a limit on how much interest credit card companies can issue and on the fees that merchants have to pay to credit card companies when customers pay with plastic.

These two issues were already heavily debated when the credit card bill was being deliberated in the Senate. In the Senate, a proposal putting a 15% cap on interest rates was ultimately killed by the strong lobbying of the credit industry and by worries in the Senate that the proposal might ultimately kill the credit card overhaul package.

Sen. Dodd has not given up on these issues and is already making preliminary steps to pursue legislation on interest rate caps and regulation of merchant fees.