Credit card debt
A credit card debt is a liability towards a lender, derived from exceeded credit card usage. It is also known as credit card default and occurs when a borrower misuses and surpasses his credit card limit. If he pays the amounts due on time each month until the debt is cleared, the debtor’s monetary obligations will not be considered as past-due payments. If he fails to cover the debt terms and to repay the amounts due before a deadline has passed, his liabilities will be marked as defaults due to be paid. In such case the lender will immediately start a debt collection process, using a professional debt recovery agency, or using his own internal department. When a borrower does not pay in time, such actions are regarded as a breach in credit card’s conditions and terms of usage. This might lead to pre-legal and even legal or court actions. It will also increase credit card’s monthly interest and can also include additional taxes to be paid by the debtor. Different researches and statistics have been carried out in order to determine the average credit card debt amongst various countries (e.g. the Federal Reserve Bank of the United States and its Payments Study, ext. link 1).
How to consolidate credit card debt & execute debt management
Credit card consolidation is a subdivision of the general consolidation of bad debts. When using this repayment method, the consumer combines all his credit card debts into one single obligation and transfers the balances of all his credit card into a new one, which he will use for full clearance of the debts, derived from misusage of credit cards. This settlement option can be offered and carried out by private debt help companies or by the credit card providers. These providers can either be one of the previous debts’ owner (an original creditor), or can be a third-party, which only offers to grant a new loan to the debtor in order for the rest of the defaults to be covered and paid in full.
Debt consolidation can be beneficial for the consumer, as this method usually leads to decrease of the total interest paid per month. Although this option will prolong the debt repayment period, it will also reduce the weight of monthly taxes, which can be financially unbearable for the subject of debt. This debt elimination process grants the consumer lower monthly fees, which will be more convenient and more affordable for the debtor. Consolidation of credit card defaults can be a risky process, so it is recommended that the consumer choose professional debt help, before consolidating his credit card liabilities.
Debt management execution upon a credit card debt is another applicable option for debt repayment. The most important matter, when choosing a debt management, is not to fall behind again with regular payments. If past-due liabilities occur again, after the lender has granted debt management plan to the debtor, the first party will most likely apply the old debt terms. The creditor will lower the monthly rates and can also freeze all incoming additional fees & interests to the consumer. But as the debt management is an unofficial and informal debt repayment option, the lender might as well validate the old terms at any time, not only if the debtor has late payment occurrence again.
Repayment options for a credit card debt
A consumer has many options referring to credit card debt repayment. Depending on the will of the lender, the debtor can benefit from various clearance options. The creditor might agree to:
- reduce the amount of monthly payments;
- reduce the amount of interest rate;
- freeze all future interest fees;
- freeze all additional payments forwarded to the debtor, except for the full debt sum;
- delay debtor’s property foreclosure for a certain period of time, which represents the so-called forbearance agreement (source: http://en.wikipedia.org/wiki/Forbearance);
- lower the total debt amount in return of a single transaction (lump sum payment) made within a few days/1 week;
- grant another loan to the consumer in order the rest debt obligations to be covered. Usually this amount is a secured debt with a collateral as a guarantee, but the lender can also agree to an unsecured debt borrowing.
A debtor can also look for professional debt counsel from an authorised debt help organisation. Such institution will advise the consumer how to improve his personal debt management, how to control his income & expenditures and how to operate with different formulas in order to calculate his own expenses and to receive a percentage, which shows the probability of falling behind with monthly debt fees. They will also advise which will be the most suitable credit card debt restructure plan, according to consumer’s financial condition, income, expenses and existing debt fees.
Used literature & external links