January 21, 2009
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News: CC ‘Debt Forgiving' Strings.
By now, the word is out about credit card lenders forgiving between 20% to 70% of a card holder's debt. So, what are the constraints and qualifications? In the first place, not everybody's gonna qualify. One of the rules is that these credit card debtors who will qualify must now be at least 90 days in default and, also, that person must not have a history of being in this situation. The banks are not out to help freeloaders. Long before such offers are made, the credit card lending banks will attempt to negotiate less drastic terms. Terms like creating a repayment schedule where the debtor can actually pay back the entire amount owed on the credit card but with lower interest and lower payments. Late fees could be wavered.
Sound too good to be true? Be advised then, that this is only half of the truth. The other half is realized when we look at the consequences. The action taken by the credit card lender is called a ‘charge-off', which means that the bank is writing off that portion of the debt that is forgiven as a total loss. The consequences to the ‘forgiven' borrower come from the trashed credit rating that they inherit as a result. This ‘black mark' will remain on that person's credit report for the next seven years. During that time, all companies that are concerned with that person's financial integrity will find this black mark in their credit report and make their own interpretations as to the significance. These would be entities such as prospective employers, security checks and just about all lenders. That person's credit score could be lowered by 100 points, which would put them out of the prospective borrower's market. Any credit received from that point on will almost surly be attached to high interest rates and low borrowing ceilings. That person could be looking at an additional $50,000 in interest charges if they ever try to buy a home or re-finance their existing one. There may not be any more credit cards for them in the near future.