January 21, 2009
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News: Credit Card Freebees Have Strings Attached.
At this rare juncture, credit card lending banks are actually forgiving debt. Not all of it, mind you. But, as much as 70% of the principle. Be advised, though, this move is not for your benefit, but theirs. The worst problem of these lending banks is not, necessarily the trouble they're having right now (which is a lot) but the dismal future prospects. Even though bad results are already anticipated, the results coming in every quarter are even worse than expected. The credit card industry needs to shore up confidence as soon as they can. So, they've decided to cut their losses early and to collect what they still can before some other creditor gets it. Since credit card debt is, largely, unsecured, the industry is finding that they're toward the end of the line to be paid (but still in front of stock holders). Also, the inevitable downturn through the next year is almost certain to get worse. These banks need to restore confidence to their Boards of Directors and their shareholders.
Back in November, the big credit card lending banks banded together in a request that the Treasury Department allow tax preferences to the parties on both sides, the lenders themselves and the struggling consumers. The speaking association on the credit card industry's behalf, asked permission of the Fed to allow the banks an ‘early write-off' on their tax losses and to give the ‘forgiven' consumers a ‘late gain' for the forgiven debt. The Fed's Timothy Long, the senior deputy comptroller for bank supervision policy responded with a flat out "No".
With all this hoopla, many credit card debtors are being tempted by the good news of lenders forgiving some of their credit card debt. Being too hasty, however can deliver some bad news that is better understood going into it before making that decision.
If you decide that you're through with credit forever (or, at least several years), then it might be a good deal. It you're way in credit card debt so deep that you can never dig yourself out, then it might be a good deal. But, what you should know is that, if you take this route, the legacy will hang with you for years to come.