Why the level of credit card debt in USA is always rising?
There are several reasons for credit card debt level to rise. First of all the low interest rates encourage people to take more credits and leave significantly high balances on their cards. Sometimes the balance increase is seasonal like back to school shopping, or accidental like getting to hospital. However some people keep their rates high constantly for no good reason.
Banks aren’t helping much since they keep lowering their standards. Each forth of their consumers obtains so called nonprime credit record which means having 700 credit scores and less. People who are already drowning in debts are now capable of getting credit.
The late payments are becoming the everyday routine, about 0,75% of them are at least 90 days overdue. According to statistics people are investing less money in their retirement then paying off as interest rates. The best practice nowadays is concentrating on paying off the debts instead of increasing them.
How to run the card debt negotiation
A lot of people wonder if there’s any other way except for the bankruptcy in case they’re drowning in debts.
You can ease the financial situation by contacting your bank. Try to negotiate managers there into some kind of workout agreement or even into reducing your bills for several months.
This is not going to be easy, since you will have to face the handful of phone calls and deal with hundreds of details like impact on your credit history and the tax bill you get next year.
We offer you three main steps to renegotiate your debt, still brace yourself for a long way to your debt relief.
Step 1: Find the optional solution
There are various kinds of arrangements in USA, so take your time to figure out which one is right for you. The most popular ones are:
- Lump-sum settlement;
- Workout arrangement;
- Debt management plan;
Let’s have a close look at their special features.
If you have any access to the significant sum of money, you can talk the bank managers into paying less then you owe. Sometimes they may also let you divide the whole sum into three separate payments. The impact on your credit history will be the same as in charge-off case, so be sure your sum grants your complete bill satisfaction.
In this case the bank lowers the interest rate for you. Over-limit charges and late fees will not be charged as well in most cases. The main goal of the temporaryprogram is to help you to get back to your feet, so you can go on paying off your credit. However sometimes the workout is permanent and lasts until you pay off the already existing debt.
There are several cons of this option. First of all you will not be able to use your credit card due to the credit line being cut. The impact on your credit history totally depends on the report the bank gives to the credit bureaus. In case the report says your credit line is cut, your scores will be low until you get the debt relief. On the other hand the bank is free to report you’re making full timely payments; in this case your credit history will stay nice and shiny.
If you do not want to negotiate with your creditor, opt for a debt management program. Make sure the agency is affiliated with either Association of Independent Consumer Credit Counseling Agencies or National Foundation for Credit Counseling. The counselor will meet with you and your creditors separately, so you do not have to run any negotiations yourself.
Keep in mind that all card accounts you obtain will get included in the program and be closed. The agency does it for the success of the negotiation, since the counselor talks about the defined balance on your card. However while the program itself is not capable of harming your credit history, shutting down all the accounts will certainly have this drastic effect due to the harm of the utilization ratio. Still this option is far better than bankruptcy.
This one gives you several months to get back to your feet. Opting for this program, you will pay all the debt you owe and perhaps even some more penalties, since the forbearance program offers nothing more but a break. It has nothing to do with forgiving any kind of debts or fees.
Step 2: Define your debt and income
It’s the right time to examine your debt. Ask your creditor for a breakdown of your bill. You will be surprised to see the percent of your debt formed by various fees and charges. It might appear to be nearly half of the whole sum; at least this is what most USA citizens find out.
Some people stay really close to the credit edge, so the very first unexpected spendingleads to fees and charges.
You can avoid this by leaving some financial space for any kind of payments you might not be ready for. This will keep you safe from the penalties and your debt from growing.
Step 3: Negotiate with your creditor
At this point you’re ready to give your company a call. The series of calls, to be exact.Some people opt to write a letter, still keep in mind that the law is on the side of your creditor, who’s interested in your money much more then in negotiating with you. So consider the most certain ways to get creditor’s attention, since it’s easier to ignore the letter then the constant phone calls.
You need to contact the department of workout or settlement arrangements directly, since the other managers are most likely not authorized to deal with your situation. Keep in mind that each bank has its own policies and department names, so be specific when defining your case.
Once you get the correct manager on the line, ask for his or her name, ID number and phone number (be sure to get it with extension in order to give the direct calls avoiding the secretary). Then explain your situation and listen carefully to the answer. When the talk is over, write down the short summary of the call with date and time. You might need this later.
During the conversation let the manager know you’re not running away from your debt. Be specific, the phrase “I do want to pay you. How can I do it?” will go just fine.
Prepare yourself for a really long negotiations, a lot of calls and chats with various people who may even contradict each other. For this keep the summaries of the previous calls near at hand, so you do not stumble over the same questions once again.
What is the right time to call?
Most people in USA tend to call when the debts are already chocking them. However this gives them quite a short time for solving the problem, while the negotiations can take months during which they will have to make late payments and dig further into the debt trap.
However it might be hard for the people who missed one payment or no payments at all to figure out when it’s already time to negotiate about their debt.
Most banks move the unpaid debts to the delinquency department after 90 days, and that is when the clock starts ticking for the debtor and the lender as well. If the debt is not paid in 180 days, it is removed from the books, and the company starts legal actions to retain the money.
Your debt might be sold; still in this case the lender loses about 35% of the tax benefit. That is why most lenders are interested in finding the way to get at least the part of the sum before they have to write off your debt.
That is why some companies start the negotiating far before the 90 days limit. They may give you a call after 60 days of payment delay to get more time for settling the problem.
What information the lenders tend to hide
Keep in mind that creditors are not going to pamper you, since you still owe them their money. After the first call your credit card limits will most likely get frozen, unless you have already maxed out.
If you talk your creditor into forgiving your debt, it may as well result the tax consequences. The lender shall report to IRS about forgiving you $600 debt or more. This sum will be calculated as your income for the next year, so your tax will rise.
Your credit story might get spoiled by the debt settlement. Here everything depends on the reports credit bureaus get about your arrangements. Forgiving the charges can be counted as partial settlement. If in this case your debt is considered to be paid “as settled”, the consequences will be similar to bankruptcy. All you can do is asking the creditor to report your debt as paid “in full”.
If you opt for the workout arrangement, the influence on your credit history will totally depend on the report the company gives to the bureaus. Try to avoid any mentioning of the partial payment. The best is to have status “current, complete and timely payment” in your report.
Be attentive and preserving; do not let the company write whatever it wants just because its managers usually do not care much about this matter. Do not accept the first offer they give, work for the craved result.
Why people deal
Sometimes the unexpected life events are able to result drastic debt consequences. It might be illness with its medical bills, the sudden loss of job, the crashed car in need of major repair, divorce etc.
Whatever the reason is, sum it up and give a short description to the creditor for him to understand why and how your financial situation changed. Ask if you can use some payment plan.
Point out that you will not be able to pay off the bill unless your payments are cut to the certain amount, or focus on achieving better APR (annual percentage rate) for your payments to automatically lower.These two methods are widely used in USA.
Do not be afraid to negotiate. Remember that creditors are not able to get more then you can offer them according to the law, so do not feel yourself being enslaved by the debt. Feel free to mention the bankruptcy as your possible option.
Why all the arrangements shall be done in written form
Finally you have the long-awaited deal. Still there are some more things to take care about. The life goes on, people change jobs and banks reorganize their inner structure. This means one day you may find out that the person promising you the great deal over the phone is long time gone, or your debt is passed to some other company. Even the reports to credit bureaus might be performed incorrectly.
To avoid this kind of situations put everything in writing, mentioning all the aspects about your account. This will be the guarantee for your financial future to be calm and cloudless.