Credit Card Holders Getting Assists From Credit Card Companies

It is pretty obvious that the heyday of credit card spending is now in the past. The economic meltdown and the resulting credit card crisis has made sure of that. Now, credit card holders are scrambling to pay off large credit card debts. Surprisingly, they are receiving assistance from an unlikely source, the credit card companies themselves.

It is a well known fact that credit card companies are having difficulty maintaining profitability nowadays. Credit card spending has dropped drastically as credit card holders try to regain some semblance of financial balance, making credit cards less profitable for credit card holders. An even bigger problem are credit card holders who carry debts but are not paying them off. While collecting fees from delinquent debts is a boon for credit card companies, when the card holder stops paying the debt altogether, credit card companies are in deep trouble.

Credit card companies call it charge offs and, for them it is the worst thing that can happen to a debt. When credit card companies issue charge-offs, they are basically giving up the debt and writing it off as uncollectible. Since the start economic meltdown, credit card companies have been experiencing a sharp increase in charge-off rates. According to Moody’s, the charge-off rate of credit cards in July was at 10.52% of balances already. What is even more worrying is that Moody’s expects that number to increase to 12% mid next year.

Faced with the threat of ever increasing charge-offs, credit card companies are now drastically changing their stance when it comes to debt payments. Credit card companies are now prioritizing on closing down the debt rather than letting it revolve. In the past, revolving debts were one of the most profitable avenues for credit card companies. With revolving debt, credit card companies collected large amounts of interest fees. This practice has become no longer profitable and is now considered as very risky. More and more credit card holders are opting to forego debt payment altogether in the midst of the financial crisis.

To counter this, credit card companies are doing everything they can to minimize charge-offs. This includes allowing indebted credit card holders to negotiate for lower interest fees, arrange for a more manageable payment arrangement and even pay off their debts completely at a lower amount than the original debt.

Credit card companies are keeping mum about these practices, for fear of being deluged by credit card holders requesting for these services although they are capable of paying off the debt. These practices are not without penalties for the credit card holders too. Usually, credit card holders who get these types of arrangements will have to give up their credit cards. Their credit scores will also suffer a huge blow as well.