Will Credit Card Companies Settle For Less - Yes Indeed

Will credit card companies settle for less?

The answer will most probably be 'no' if today were the 80s, the 90s, or the early years of the millennium. But times have drastically changed with the financial crisis that, up to the moment, has not seen too much light of day. Now more than ever is the average citizen burdened with credit card debts.

The website 'CreditCards.com' has reported that the average credit card debt per household has reached $ 14,743. The Federal Reserve Bank of Boston also reported in January 2010 that US consumers hold 609.8 million in credit card dues.

Consider also the following: According to the Fitch Ratings, the number of credit card defaults in March 2009 had hit 11.37% while the National Foundation for Credit Counseling reported in April 2009 that in the last 12 months 15% of Americans or 34 million people have been behind in making credit card payments while 8% or 18 million people have missed an entire payment. These were figures for 2009 or early 2010. Imagine what these numbers would be today - maybe we would be estimating a total indebtedness of billions of dollars.

That being said, we ask the question again - will credit card companies settle for less than the total amount owed inclusive of fees and interest charges? According to reliable reports, some credit card companies have done just that. A Nilson Report said that in 2008 about 2.7 million credit card loans were modified. In the same year, the American Bankers Association admitted that credit card loan modifications had gone up. These figures were for 2008 and 2009 when the effects of the crisis are just being felt. In more recent times, the Bank of America and the American Express have admitted to increasing lower negotiated settlements with delinquent card holders, on a case-by-case basis. Some individuals have also reported an average of 35% discount on total credit card debts.

Why Will Credit Card Companies Settle for Less

o A credit card is an unsecured debt unless you are holding a secured credit card. This means that the credit card issuer can't forcibly take your home or any asset that you may have.
o Only legal proceedings can propel you to make payment but this entails expense on the part of the credit card company and it takes time before a court decision is handed down. This action may force you into involuntary bankruptcy and the card company is likely to get only a figment of the debt, if anything at all.
o Credit card retailing is just one of the businesses of most banking and financial institutions - they can recover their losses through their other products and services. They would rather cut their losses rather than be empty-handed. Shortening the time to get some returns on defaulted credit cards also minimizes their opportunity costs.

Let this not however embolden you to default on your credit card payments. The costs may even be greater to you since your credit score will be significantly lowered. You will have to deal with the hard consequences of such an occurrence for many years, unless you negotiated for and was assured that no negative remarks will be written in your credit report that will downgrade your score.

Will credit card companies settle for less - yes they will. They would rather be thrown in some bones than no bone at all. But then, that may leave you with no bone at all for your future.


Source: Credit Cards For People With Bad Credit Rating

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