Ideally, everybody wants to pay off their credit card debt. For any number of reasons, that goal could be postponed or forgotten altogether, much to the chagrin of the credit card issuing bank. Things happen…people get sick, people lose their jobs, or go on spending sprees from which they cannot easily climb out. It’s a given that some good consumers will be unable to pay off their debt. The latest statistics on debt from the Federal Reserve indicate that there is currently a $2.6 trillion dollar debt, which translates to an average of $8,500 for every United States citizen.
The question is what can “they” do to you when you are unable to pay off your debt? More importantly, what can you do to help yourself out of this sticky situation?
First of all, understand that the credit card companies and the issuing banks have legal rights to the money they are owed. The only legal option that can protect you is that of filing for bankruptcy. Federal law does allow a credit card company or bank to pursue their money in court. Attorney Richard Tomlinson explains on his website that credit card companies and bank lawsuits are becoming common practice in today’s climate. In most cases, lawsuits are considered a “last resort” and are usually filed in extenuating circumstances.
The Debt and Collection Process
When do credit card companies sue? For example, a consumer might be sued if he or she has an unusually high debt and if the credit card company knows the person has valuable assets. The consumer might also be sued if he has a regular job, stable residence and basically any good reason to pay off the debt as agreed. However, most of these companies will not pursue legal options right away. In fact, they may see advantages in hiring a third party collections agency.
Collections agencies may give credit companies (or banks) the assurance that they can collect most of their money now, by signing over the debt to the agency. In theory, this saves the credit card company a lot of hassle, not to mention a long and drawn out legal recourse. Collections agencies have experience when it comes to negotiating with debtors, so the option of either hiring collections agencies or signing the note away to them certainly comes up before a lawsuit is pursued.
The first step the credit card company will take will be to report your delinquency to a major credit agency. This will harm your credit score and affect your ability to get credit elsewhere. Then the harassing phone calls will start, and either the credit card company or the collections agency will begin to use intimidating speech to get you to pay up.
Next, (and assuming you ignore all of the threatening letters) the company will either hire a collections agency or will take you to court and try and force you to pay your expenses. If you have the means to pay, they may try and take some of your assets or request wage garnishment for all of your incoming paychecks. The most common recourses at this point are to try and negotiate with the credit card company, seek debt consolidation or refinancing, or try facing the company in a court of law.
The Option of Bankruptcy
What about the option of filing for bankruptcy? You don’t actually need a lawyer to file for bankruptcy; however, it’s advisable that you do, so the bankruptcy attorney can guide you through this complicated process and try and absolve most of your debt. Bankruptcy could be an option for you, especially if debt is an ongoing situation. Bankruptcy is discouraged for the most part, since it mauls your credit report and marks you for the next seven years. Some tend to think of bankruptcy as an easy way out. Unfortunately, the facts show otherwise.
Recent legislation in congress now states that even if a party files for bankruptcy, that doesn’t necessarily mean that all debts will be forgiven. In 2005, CNN reported that George W. Bush signed a new bankruptcy reform bill that makes it harder for individuals to clear up debts through bankruptcy options, and restores more power to creditors. So, while bankruptcy is an option, it should continue to be seen as a last resort. Unless you have a good bankruptcy lawyer, the odds are stacked against you coming out on top in a bankruptcy situation. The last thing you want is to owe more money after you’ve ruined your credit and filed for Chapter 13!
Other Options to Consider
There are other options besides bankruptcy. You can try consolidating your debt (which means combining all credit debts and then negotiating for a lower payoff) through a legitimate debt consolidation company. Legitimate is the keyword here. There are many scam operations posing as debt consolidation firms.
Remember that debt consolidation has one primary use for you: refinancing the debt at better terms. If the company doesn’t do that for you—that is to say, if it doesn’t carry the loan—then you are basically paying them just to negotiate with no guarantees. This will not stop your creditors from calling, nor will it change your credit score. It could be a waste of time and money in the end.
The good news is that a credit card company is more willing to work something out with you than they are anxious to consult a collections agency or a lawsuit. Hiring a lawyer or negotiating a low payout is ultimately going to cost the credit card company money. If there is any negotiation or consolidation situation that can help the both of you, they may be willing to accept it.
The last place you want to be right now is in heavy debt. If you are slowly but surely losing the debt battle, and don’t want to face grim options of bankruptcy, collections agencies or credit card lawsuit, then now is the time to take action. Contact a credit counseling service or a debt consolidation company and see what they can do for you. Research the company online to make sure that it’s a legitimate opportunity.
If you want to try and pay your debt off over time then try renegotiating your terms with the credit card company or look into refinancing. Take decisive action by contacting a debt repair company so that you are not left at the mercy of the courts!
No matter what your situation is you will want to make sure that if you are looking for a credit card that you find the card that is right for you. Use our free credit card “Chaser” to find and compare the best credit cards online!
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