November 10, 2009
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What To Do With Credit Card Debt, Pt.2
How did this happen?Unlike standard auto and home loans, credit card debt is unsecured. In an unsecured loan the lender has no assets to support the loan in case of default. Home mortgage and auto loan, payments are scheduled on a recurring basis with a defined amount and repayment time frame. Credit card payments on the other hand, fluctuate with the interest rate and account balance. Additionally, credit card users are not required to complete tedious paperwork in order to continue use of the card and lenders don't inquire into the purpose of the loan. Basically, the consumer makes the decision on how the money will be spent. The consumer essentially grants himself an interest free loan for 2 or 3 weeks. However, reality sets in when the statement arrives in the mailbox and the consumer is forced to choose paying the full amount due or carry a balance forward with interest. The balance builds up quickly and before long, you're over your head in debt.
Economic environmental changes have also contributed to the consumers' problems. During the recent year and in the wake of record breaking credit card defaults, lenders have taken liberties in protecting shareholders by resorting to the small print in credit card terms and conditions. Making matters worse, these terms allowed lenders to drastically raise interest rates and impose steep penalties. Some consumers have been able to secure debt consolidation loans; however, these loans come with a higher interest rate. Some consumers have also turned to the courts to relieve debt. However, most are faced with finding other means of digging their way out of debt.
Most consumers agree that they have a responsibility to paying off credit card debt. There is also a general consensus that the financial industry has not been very clear or fair in managing credit lending. Anyway you look at it; it's time to find a solution to get yourself out of debt. Finding the solutions begins with the awareness of where you are.