Get Out of Debt Loving advice and help based on real experience and truth

Daniel says, “I’ve been buried in credit card debt and it feels like I make payments each month and instead of things going down, things go up. My interest rates recently went up even though I have not missed a payment or paid late. Another one of my MasterCard’s just lowered my limit a lot. Is there any hope. Thanks”

Daniel,

Thank you for contacting me. I’ll do my best to answer your question honestly and openly.

There is nothing about credit cards that operates for your benefit or that you have control over. The banks issue the cards, raise and lower the limits and play with the interest rates as they want.

Banks are self-centered and only care about their risk and reducing their liabilities and so when they shrink credit limits and that leaves you more maxed out on the remaining credit and that hurts your credit report and credit score, quite honestly, they don’t give a shit.

The credit card company is concerned about only one thing, profit. I’m not being cynical here, just dead honest. Profit is what it is all about. Profit is what fuels the bank and the little guy, like you, we’ll you’re just a number on a screen. You are a cog in the wheel to help them generate profit.

The banks know that they can increase profit by increasing interest rates. The balance becomes how much to increase interest rates without chasing customers, profit machines, away. If you’ve got shitty credit, they’ve really got you by the short hairs. You are probably not going to find a better deal elsewhere.

When the economy looks great, banks will pass water out like ecstasy at a rave. When the economy looks bad and losses are creeping up then banks start cutting and pruning to minimize their financial risks, which may hurt their profit.

Past due credit card accounts are rising. They are up 22% since this time last year because people are just getting so close to the financial edge that they are having a tough time paying the bills. And as wages contract people often turn to the credit card as a way to make ends meet. Balances go up and repayment becomes less affordable.

It is reported that consumer credit card debt has doubled since 1996 and is now cruising at around $1 trillion and while even though that number sounds really big, it’s not when compared to what it will be by 2018. The amount of consumer debt hasn’t leveled off, it is still on the climb.

Credit card companies don’t make a profit unless they poor more debt into the economy and more people use it. Banks can’t stop lending. Banks need you to go into debt.

The only real protection that consumers have is the law and right now the law lets banks do pretty much what they want to. Banks are able to change how payments are applied to your account, change the interest rates, fees and grace period, eliminate your rights for an impartial arbitration, and more.

Until the federal government gets the balls to pass laws that actually protect consumers, like through Obama’s Credit Card Bill of Rights, you don’t have much power to change what they are doing unless you pay your balance off in full and no longer carry a debt owed to any credit card company.

When you carry a balance on a credit card you are truly nothing more than a modern day slave, working hard to obey your master, the bank.

Posted under Ask The Get Out of Debt Expert

Janie wrote me and asked me the following question:

“I’m running into deep debt and I’m thinking of using one of the debt counselors I’ve seen on my local television station to help me get out of debt. Are they safe?”

Janie,

Well you’ve come to the right place for an expert answer. If you are concerned about the safety of your money, the answer is almost always yes, your money is safe with a debt counselor. While there have been some horror stories of a few debt counseling groups losing client funds because some employee stole them, that is the exception. In that case the company insurance policy should provide restitution for employee theft.

People always want to know if the debt counselor is going to run off with their monthly payment. Logically it does not make sense for the company to do that. Your monthly payment is probably so small that it would be illogical for the company to ruin their reputation and risk legal action over that.

I’ve never seen a company skip town over a monthly payment from a client of $500. That just does not happen.

There are things you can do to safeguard your money.

1. Watch your creditor statements and look for your payment from the debt counselor made to the creditor.
2. If the debt counselor has an online resource for you to check your account, logon and check the status of your payment.
3. Ask the debt counselors for an itemization of the payments they have made on your behalf.

Big hug.

Steve

Posted under Ask The Get Out of Debt Expert

“I have a quick question for you. What do you think of the sale of mortgages when consumers have no say over who the ultimate buyer of their mortgage will be? Say, you have a problem with one of the banks caught up in the sub-prime lending issues and your new mortgage with one of the companies that stayed above the fray is sold off to that other institution soon after you get the mortgage. What do you think the issues, if any, there are here?”

Jeffrey,

Interesting question.

If anyone else has a question you can send it to me right now, right here.

This is another collision of ethics and reality. From a consumer point of view it is wrong and I think a consumer could demonstrate that they have been harmed to be sold to a lower quality and less performing lender. But I think that consumer would have to fight this battle in a costly legal battle where they will be out gunned. AKA, consumer screwed.

According to the terms of the original mortgage the note can be sold on but I don’t think I’ve ever seen a statement about the quality of the lender that it can be sold to.

From the bank POV they are not going to want to hem themselves in to any particular lender and will deny any obligation to screen purchasers for suitability or fitness, however, there’s an argument. Maybe a point could be made that an inferior lender is not suitable under the Uniform Commercial Code? Doubtful but worth exploring with a lawyer friend if you’ve got one.

Steve

Posted under Ask The Get Out of Debt Expert

Greg wrote in asking for some advice. He said:

My mother-in-law has over $20,000 in credit card debt she needs to get rid of this debt so she concentrate on paying her medical bills. Would you suggest Debt Relief or Bankruptzy?
If Debt Relief can you sugggest an agency?

Greg,

Thank you for your question. It brings up some interesting points.

For some, $20,000 does not sound like a lot of money but the reality is no matter what the number is, too much is too much.

Medical debts are a leading contributing factor towards bankruptcy. In the U.S. we have an inequitable situation when it comes to affordable healthcare. Those that can’t afford superior health insurance wind up being billed for the full amount due for medical services, and at rates higher than people with insurance have to pay. This only leads to mounting bills that just can’t be paid.

What concerns me most about this situation is that we don’t know if the medical bills are going to continue. If this is an ongoing situation, they will.

Now, you asked about a Debt Relief agency and I think you should look into what solutions are available from this one.

But I also think that your mother-in-law wold be smart to meet with a bankruptcy attorney to find out what bankruptcy would mean for her. Only once she has investigated both options will she be able to make an informed decision about which path is best for her. She can find a local bankruptcy attorney here.

Steve

Posted under Ask The Get Out of Debt Expert

Recently Sean wrote me from the UK and said:

“I’m worried that there is no light at the end of the tunnel for me. I’m working hard, paying bills but can’t reduce my debt at all. Just last month I used money from my overdraft facility to get us through the month.”

Debt experts all across the UK are scratching their heads wondering where the desperate consumers are and what are they doing to address their growing financial problems.

With pressures on all sides increasing against the bank accounts of UK consumers the prudent advice of ‘Be Careful’ is sure to fall on deaf ears. Growing concerns about inflation, loss of jobs and rising basic costs can only result in a few possible outcomes.

1. People will tread water and not make any gains or losses from their financial condition now.

2. Economic conditions will improve for a small amount of individuals due to isolated circumstances.

3. The vast majority of consumers will experience a falling standard of living and and an increase in their level of indebtedness. This pressure will create a ripple effect that will impact the income of businesses through reduced consumer spending.

It’s Happening Now

There has already been a sharp deceleration in consumer spending growth in reaction to falling house prices and financial pressures at home. And for now, inflation, the rise in the cost of stuff we need to buy like petrol and food, is rising at more than twice the government target.

But for the individual person, it seems like the remedy for that situation is to ask for a raise to keep your current salary at pace with the cost of inflation. But businesses can’t afford to do that.

With business confidence slipping and a new survey by Lloyds TSB bank showing almost 66% of business in the UK more pessimistic about the state of the economy than they were three months ago, an increase in salary is not likely.

Wage increases are actually harmful to inflation since all they do is drive the increase is the price of goods and services so a large increase in wages will result in a large increase in prices, and the circle will continue. This is a classic example of what is good for the the individual is not good for the masses.

What Advice

Prudent advice is to focus on getting your monthly expenses fit within your monthly income and leave room for a bit of savings as well. Anything other than that, increasing personal debt, using credit cards or loans to pay other credit cards or loans or using credit to afford basic living expenses is a massive warning sign that financial trouble most likely looms ahead.

Solutions Available But Is Bankruptcy Best?

Debt advice groups are able to offer solutions like an Individual Voluntary Arrangement (IVA) or Debt Management Plan (DMP) and in fact a UK debt charity recently announced that the majority of consumers are attracted to the Debt Management Plan and about one in fifty opts for an IVA which results in an average of a 58% reduction in debt.

Those solutions certainly sound magical and wonderful but neither of those solutions will be effective if consumers can’t stick to the repayment plan to the end and fully repay their debt as agreed. Each approach has risks and is not perfect.

While the amount of debt reductions with an IVA are outstanding and an IVA is a formal and binding arrangement on the creditor to resolve the debt, it is only successful if the debtor makes all of the payments promised under the IVA agreement. If any unforeseen circumstances arise and prevent the debtor from making more payments in year three out of a five year repayment plan, that could spell the end of the IVA and the debtor would have to start all over again. However, it is not all doom and gloom. An IVA can help debtors to reduce debt and avoid bankruptcy if they can afford the negotiated and agreed upon payments that the Insolvency Practitioner will present to their creditors.

Believe it or not, an informal Debt Management Plan is even riskier. With a DMP, there is no formal plan that binds creditors, like an IVA, to have to live up to any specific terms during the repayment period of the DMP. Creditors can bill for interest waived during repayment, can change interest rates at anytime, can change the repayment terms and do as they wish. While some debtors do repay their debt with a Debt Management Plan, the majority of debtors who enter Debt Management Plans most likely never make all the payments necessary to eliminate their debt.They will have made modest or token payments for a long period of time without totally eliminating their debt.

UK bankruptcy rates have remained relatively flat recently, even dropping in recent quarters, with difficult economic times in the UK which is very surprising. When faced with a personal financial situation of slipping wages, rising costs and not enough disposable income to make ends meet each month, bankruptcy is an easy, quick, legal and available way to eliminate consumer debt completely and start over.

An immediate fresh start in the strained finances of a family can result in a quicker return to a more normal life. But even with such a positive outcome, some consumers fail to learn from their mistakes and sink back into debt again.

If a debtor can avoid repeating their financial mistakes, can learn from current financial failures and shed their debt quickly and in a binding way, then the outcome will potentially be much better than entering a Debt Management Plan or an IVA which is not affordable or sustainable.

Source: Myvesta UK

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Posted under Ask The Get Out of Debt Expert