The warning signs are flashing bright red: American consumers are drowning in credit card debt, and the situation is only getting worse. According to recent data from the Federal Reserve Bank of New York, the percentage of credit card balances that are 90 days or more overdue has reached its highest level since 2012, in the aftermath of the Great Recession. This troubling trend of rising credit card delinquencies suggests that more and more Americans are struggling to keep up with their credit card payments.
Looking at the Credit Card Debt Crisis
To get the full scope of the problem, it’s important to look at the bigger picture. Total credit card debt in the U.S. has skyrocketed by over 45% in just the past three years, reaching an all-time high. At the same time, the average interest rate on credit cards has jumped nearly 7% since mid-2020. This toxic combination of record-high debt levels and soaring interest rates has left many consumers buckling under the weight of their monthly credit card bills.
When someone falls behind on their credit card payments, the consequences can be swift and severe. Late fees and penalty interest rates can quickly inflate the debt even further. A single missed payment can also damage a person’s credit score, making it harder and more expensive to borrow money in the future.
However, the impact of rising credit card delinquencies extends far beyond the struggles of individual borrowers. When large numbers of people can’t pay their bills on time, it sends ripples throughout the entire economy. Credit card companies, faced with mounting losses from defaults, may tighten their lending standards, making credit harder to come by and more expensive for everyone. This credit crunch can dampen consumer spending, slow economic growth, and potentially even trigger a recession.
Protecting Yourself from the Credit Card Debt Trap
What can you do if you find yourself caught in credit card debt? While there’s no magic wand to make the debt disappear overnight, there are steps you can take, along with reaching out to us at Consumer Law Attorneys, to regain control of your financial life and start building a more stable future.
Seeking Credit Counseling
One option to consider is working with a non-profit credit counseling agency. These organizations offer free or low-cost advice on budgeting, debt management, and financial planning. They can help you create a plan to pay off your credit card debt over time, often at reduced interest rates negotiated with your creditors. However, it’s important to choose a reputable agency and be wary of any organization that pressures you to sign up for their services or asks for large upfront fees.
Negotiating with Creditors
If you’re struggling to make your minimum payments but you’re not yet in default, reaching out to your credit card companies directly may be worthwhile. Some lenders may be willing to work out a hardship plan, temporarily lowering your interest rate or monthly payment to help you get back on track. Keep in mind, though, that these arrangements are entirely at the discretion of the creditor, and not all lenders will be receptive to negotiation.
Exploring Debt Settlement
For those with more substantial credit card debt, debt settlement might be an avenue to explore. In a debt settlement arrangement, you typically stop making payments to your creditors and instead make deposits into a special savings account. Once you’ve accumulated enough funds, a debt settlement company will reach out to your creditors and attempt to negotiate a lump-sum payoff for less than the full amount owed. If successful, debt settlement could allow you to resolve your debts for a fraction of the original balance.
However, there are risks and drawbacks to debt settlement that need to be carefully considered. Your credit score will take a severe hit from the missed payments, and there’s no guarantee that your creditors will agree to settle. You may also face tax consequences, as forgiven debt is often treated as taxable income.
The Bankruptcy Solution
For those drowning in credit card debt with no realistic way to pay it off, bankruptcy can provide a powerful lifeline. Bankruptcy is a legal process that allows individuals to either eliminate most of their debts or repay them under the protection of the federal bankruptcy court. There are two primary types of consumer bankruptcy: Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy, many of your unsecured debts, including credit card balances, medical bills, and personal loans, can be completely discharged. This means that you are no longer legally bound to repay these debts, and your creditors are prohibited from taking any further collection actions against you.
To qualify for Chapter 7, you must pass a means test demonstrating that your income is below your state’s median level or that you don’t have enough disposable income to repay your debts. If you qualify, the entire process can be completed in as little as three to six months.
One of the main advantages of Chapter 7 is that it provides a fresh start, allowing you to wipe the slate clean and rebuild your financial life without the burden of overwhelming debt. However, there are some drawbacks to consider. Certain debts, such as student loans, tax debts, and child support arrears, cannot be discharged in bankruptcy. You may also have to give up certain valuable assets, although many essential items can be protected through bankruptcy exemptions.
Chapter 13 Bankruptcy
If your income is too high to qualify for Chapter 7 or you want to protect certain assets like your home or car, Chapter 13 bankruptcy may be a better option. In a Chapter 13 case, you propose a plan to repay all or a portion of your debts over a three- to five-year period. You make a single monthly payment to a court-appointed trustee, who then distributes the funds to your creditors according to the terms of your plan.
One of the key benefits of Chapter 13 is that it can allow you to catch up on missed mortgage or car loan payments and prevent foreclosure or repossession. It also has the power to reduce or eliminate certain debts, such as unsecured junior liens on your home or qualifying car loans. At the end of your repayment plan, any remaining dischargeable debts are wiped out.
Chapter 13 does require a longer commitment than Chapter 7, and you must have a steady income to fund your repayment plan. However, for those who don’t qualify for Chapter 7 or need to protect important assets, it can provide a structured way to get back on solid financial ground.
The Automatic Stay: Immediate Relief from Creditor Harassment
Regardless of whether you choose Chapter 7 or Chapter 13, one of the most powerful features of bankruptcy is the automatic stay. The moment you file your bankruptcy petition, the automatic stay takes effect, immediately halting most collection actions against you. This means that creditors must stop calling, writing, or suing you to collect on debts. Foreclosures, repossessions, and wage garnishments must also cease.
The automatic stay provides a much-needed breathing room for those who have been hounded by aggressive creditors. It allows you to regroup, assess your options, and start the process of rebuilding your financial life without the constant stress and anxiety of collection efforts.
Contact Consumer Law Attorneys Today for a Free Consultation
If you’re struggling with credit card debt and don’t know where to turn, we’re here to help. Contact us today at (877) 241-2200 for a free, confidential consultation. We’ll listen to your story, answer your questions, and help you understand your options. Remember, you don’t have to face this crisis alone. With Consumer Law Attorneys on your side, you can take back control of your financial life and start moving forward with confidence and hope.
