Credit Cards

Misconceptions Surrounding Credit Card Debt Forgiveness

Many people are under the misconception that President Obama has suggested or enacted a bill to provide credit card debt forgiveness to Americans. This is not true. It is, in fact, a ploy by several companies to lure in unsuspecting consumers. Generally these companies act as go-betweens, selling the information they obtain from hopeful consumers to third-party companies that specialize in debt settlement.

The difficult economic times have caused a marked change in credit card usage. Many people have switched from using credit cards for extras like vacations and needless purchases to reaching for their cards for more practical uses such as paying household bills or buying clothing for their children. Everyday usage of credit cards has resulted in a high quantity of accumulated debt with prohibitive interest rates. Monthly minimum payments cover little more than the interest, which makes it near impossible to pay off debt and leaves the consumer looking for alternative answers.

The advertised program to forgive credit card debt claims to afford a 50-60% reduction in amounts owed by consumers with credit card debt in excess of $10,000. While the bill is a ruse, the suggested savings may not be. Many lenders have been affected by the growing bankruptcy rates and as such they are now willing to work with borrowers in an effort to regain at least a potion of the debt that otherwise would be entirely written off. Debt that has been outstanding for a long period of time has likely been subjected to high interest rates, late fees and over-limit fees that have often been the result of the former two. Through settlements, or substantially lowering the balance of the account, the lender receives payment and no longer needs to invest in collection costs associated with outstanding debt.

Prior to contacting a lender to make settlement arrangements, it is advisable for a consumer to sit with a credit counselor to review all of his or her options. In some instances bankruptcy is a cleaner, more direct approach. If settlement is the best choice for the consumer, however, a debt consolidation company might be able to negotiate a better percentage rate. Be warned that most consolidation companies require payment for their services, although laws are being passed to prevent them from charging up-front or unreasonable fees.

Being in debt can be a stressful, trying experience; getting out of debt requires research and work. All the hype about Obama’s credit card debt forgiveness program sounds legitimate, making it is too easy to fall prey to the gimmick. Consumers should gather information and speak with professionals before making their own debt relief programs.