Eliminating Credit Card Debt Advice

Although Americans are deeper in debt than ever, they are paying off bigger portions of their monthly credit-card bills.

For card issuers, which profit by collecting interest on unpaid balances, that's bad news. In the past, when interest rates crept up, as they are doing now, fewer cardholders could afford to pay down balances.

To make matters worse for card issuers, federal bank regulators issued new guidelines in 2003 meant to ensure that cardholders pay off more each month than just the fees and interest charges that have accumulated. To comply with the rules, many banks have raised minimum-payment requirements, bumping up the payment rate further.

Card issuers are trying to replace...revenue by increasing late-payment fees and raising interest rates for customers unable to pay their bills in full.

In an effort to build customer loyalty and increase spending, issuers have launched a slew of new cards and have introduced new checkout-counter technologies to encourage more card use. They have spent billions of dollars to grow through acquisitions, buying rival card issuers and specialized credit-card portfolios from retailers.

Credit-card companies make most of their money by charging interest to customers who don't pay off their balances each month. Such customers are known as "revolvers." Card issuers, who have raised interest rates in tandem with Federal Reserve increases, now charge an average interest rate of 17.9 percent on unpaid balances, according to the Nilson Report, which tracks the card industry.

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If you have an overdue Chicago parking ticket, water bill or police fine, the next call you get could be from an ex-con telling you to pay up.

Ex-offenders will not be handling cash or credit card information. They will merely be placing phone calls to scofflaws under rigid guidelines established by the Fair Debt Collections Act. If the person on the other end of the phone decides to pay up, the call will be transferred to a payment agent, she said.

"They will not have any access to credit card information or any detailed information on a customer," she said. "Various law firms and collection agencies are doing this now. This will save the city money. Collection costs will be lower. "

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Consumers Making More Late Payments

Consumers are having more problems managing their debt, according to a study from Experian Consumer Direct. Late payments increased 19.2 percent during the past two years, Experian discovered.

Bankruptcy Law Will Have Little Long-term Impact on Filings

The sweeping bankruptcy reform legislation will have little long-term impact on filing levels or consumer debt levels, predicts industry consultant Auriemma Consulting Group. While filings have dropped significantly since the record high levels of 2005, when consumers rushed to file before the new law took effect, the filings will...rise again and return to pre-2005 numbers.

Attorney General Lisa Madigan today filed a lawsuit against an aggressive debt collection agency that allegedly used unfair pressure tactics and misrepresentations to convince consumers they had to make payments on often uncollectible debt.

Madigan’s Consumer Protection Division has received 88 complaints against Financial Credit Service, alleging the collection agency used unfair and deceptive representations to obtain payments on uncollectible debt. In some cases, consumers alleged they were intimidated into making payments of between $100 and $5,000. In other reported instances, the defendants allegedly deducted money from the consumer’s bank account without...permission.

Madigan alleges the defendants sent collection letters and called consumers, often using abusive language to intimidate the consumer. In some cases, collectors from Financial Credit Service allegedly called consumers at their places of employment to harass them.

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CONTROVERSIAL BANKRUPTCY LAW REFORMS NOT WORKING? MOST PUSHED TO BRINK BY CRISIS.

NACBA Analysis of More than 60,000 Consumers Processed Under New Law Asks:"Where Are the Deadbeats?" Congress Expected to Find and Stop With Onerous Rule Changes?

The first analysis of tens of thousands of consumers seeking protection since a new federal bankruptcy law went into effect last October concludes that the changes put in place by Congress are not working as intended.

The report by the National Association of Consumer Bankruptcy Attorneys (NACBA) finds that of the 61,335 consumers seen so far by credit counseling firms, the required first stop under the new bankruptcy law, nearly all (97 percent) are unable to repay any debts and that four out of five would-be filers (79 percent) were forced into dire financial straits by circumstances beyond their control, such as the loss of a job, catastrophic medical expenses or the death of a spouse.

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As the IRS continues to crack down on the tax-exempt status of credit counseling agencies, some in the industry worry the scrutiny will further threaten so-called fair share payments from creditors, a main revenue source for the industry.

Creditors often allow agencies that enroll debtors in debt management plans to keep a percentage, or fair share, of the money collected. But the IRS is casting a skeptical eye, saying it’s not...in the debtor’s best interest to enroll in a DMP, and relying too heavily on the tool is a violation of tax-exempt status.

The compliance guidelines list as red flags governance by a “board dominated by creditors, banks, credit card companies or others with a financial interest in the organization” and funding sources labeled as “voluntary contributions and/or grants received in exchange for DMP services.”

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High costs for housing, health care, and education seen spurring borrowing.

Why are Americans so deeply in debt?

It's not because they are using credit cards to buy plasma TVs and premium coffee drinks at Starbucks. The real culprits, according to a new analysis, are the rising costs of housing, health care and education.

At their news conference, Weller and Warren urged Washington policymakers to consider the implications of consumer debt before families are crushed by rising costs and damaged credit.

They predicted that otherwise, many families will lose their homes through foreclosure when bankruptcy law changes make it more difficult...to escape debts.

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The Internal Revenue Service is contacting 740 tax-exempt credit counseling agencies as it expands efforts to ensure such agencies deserve their tax-exempt status. It already has revoked or plans to revoke the tax-exempt status of 41 agencies, an IRS official said today. It continues to look at an additional 21 agencies.

IRS Commissioner Mark Everson, speaking in a telephone press conference, said the agencies already investigated were “not operating for the public good and they do not deserve tax-exempt status.”

Nick Jacobs, spokesman for the National Foundation of Credit Counseling, an industry trade group, said none of his association’s members were on the IRS list of 41. “We welcome the scrutiny,” he said of the IRS’ investigation. “We welcome steps that help ensure that consumers are getting the best possible counseling.”

The decision to query all 740 tax-exempt agencies about their operations is “unprecedented action for the IRS. We will continue to do more,” Everson said.

The agencies scrutinized already offered what Everson termed ill-advised plans to consumers that resulted in those consumers falling farther into debt or bankruptcy.

Bankruptcy filings soaring again.

It looks as if last year's reform law did not really stem the enormous flood of bankruptcies after all.

Courts now see an average of 2,000 new filings a day -- four times the number that were filed in November 2005 after the bankruptcy law went into effect, according to Chris Lundquist, founder of Lundquist Consulting, which tracks bankruptcy trends.

If filings continue to rise at anything like this rate -- which is not a given, but certainly a possibility -- we could see close to 1 million filings by the end of the year.

Flood hits credit counseling agencies

Meanwhile, the leading credit counseling organization says bankruptcy reform is putting unprecedented strain on counselors' finances. Bankruptcy filers are required to undergo credit counseling before they can proceed with their cases, but many arrive at the counselors in such sorry shape that they can't pay the nominal fee the agencies impose, said Bob Ensinger, marketing director for the National Foundation for Credit Counseling.

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Higher Rates Spell More Mortgage Defaults

With home value increases slowing, consumers’ ability to tap home equity loans to pay off more expensive credit card and other debt is waning. “Consumer[s] can’t keep looking at their houses to bail them out of consumer debt,” he said

The impact of rising interest rates will be felt most directly at the low-end of the mortgage market, resulting in rising defaults in the sub-prime category, says Ron Chicaferro, executive vice president of Thornburg Mortgage In., a Santa Fe, N.M.-based real estate investment trust.

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Debt Management Operation Settles FTC Charges

A credit counseling agency and related companies have agreed to settle Federal Trade Commission charges that they deceptively marketed themselves as a not-for-profit enterprise to entice financially distressed consumers to enroll in debt management plans, and then failed to deliver on promises of personalized credit counseling and dramatic and immediate interest rate reductions.

Under proposed settlements, Lighthouse Credit Foundation Inc. and its co-defendants will pay more than $2.4 million in consumer redress, and they are prohibited from making deceptive claims about credit counseling or debt management services.

In a recent article by Credit & Collections World you are now at risk if you decide to use the Fair Debt Collection Practices Act. In fact, if you do use the FDCPA as protection the debt collectors are now more likely to sue you in retaliation.

Now more than ever you must really determine for yourself the smartest strategies to eliminate your debt. Your are going to really have to compare debt settlement companies and compare debt settlement options before you just listen to the first person that tells you what you want to hear.

Creditors and collection agencies can be very harsh. they'll harass you anytime they feel they can get away with it. Use the smartest strategies to get out of debt for your situation, and learn to really stop debt collectors cold!