With the latest numbers from the Federal Reserve indicating that Americans are facing $900 billion in credit card debt, the proposed bailout is probably a case of banks simply attempting to cut their losses. Seeing the writing on the wall as consumers deal with record unemployment rates, skyrocketing home foreclosures, inflated prices for goods and their 401(k)s tanking, these financial giants are taking action in the form of a proposed temporary pilot program in which lenders would forgive as much as 40% of the amount of credit card debt consumers owe.
The proposal is being spearheaded by the Consumer Federation of America and the Financial Services Roundtable, and has the support of the most of the major players in the credit card banking circus (I mean circuit) including Discover Financial Services, American Express, Bank of America, JPMorgan Chase & Company, Citigroup Inc., and Capital One Financial. The catalyst for this rather brash action? Credit card delinquencies are skyrocketing, and issuers’ charge-offs — balances written off as bad debt — are up 48% compared with last year, according to Moody’s Investors Service.
The credit card debt-forgiveness plan could (initially) help an estimated 50,000 people who are in serious debt, potentially facing bankruptcy; possibly more if the pilot program is deemed successful. How much debt would be forgiven would rise according to the severity of the borrower’s financial strife, ranging from 10 percent up to a maximum of 40 percent, contingent on evaluation of the individual’s personal financial situation. Individuals qualified to receive the maximum forgiveness level would be those nearing a personal bankruptcy filing. Additionally, qualified borrowers would have to enroll in a credit card debt counseling program. Debtors would also obtain a tax benefit, deferring income tax on the forgiven debt until they’d paid off the remainder of their balances.
It appears that the credit card companies have decided that getting something out of these debtors is better than getting nothing if they stop paying or file for bankruptcy.
How can I sign up? Wait; I probably don’t qualify. How “unfair” that I can’t take advantage of any of these bailout programs since I was able to sell my home last year and make a (much smaller) profit and still pay off my credit card debt each month– so far, with only part-time employment .
Many of us can probably relate with a quote from a recent article in msn money by Liz Pulliam Weston:
Bailouts are going to reckless Wall Street bankers, to homeowners over their heads and now maybe even to Americans hooked on credit cards. Where’s the reward in doing the right thing?
I guess I’ll just have to wait until the “Main Street Bailout” for those of us that have saved responsibly for years, and just lost half of it in the stock market, comes about; unfortunately I suspect I’ll qualify for that one…. that will never happen.
Is anyone else out there starting to get a little peeved?
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WOW! I thought this was a rumour. I can understand hardship, been there done that. But now credit card bailout? How can one learn a lesson if there are bailouts all over the place?
And how can one change their mindset and learn a lesson from trial and error with living beyond our means?
Great article – thanks!
It is an amazing situation where the government will perform such large bail outs for corporates in this way.
I’ve been more than a little peeved about the whole bailout situation since before the first one passed. In comparative terms, I’m in really good shape financially – and I have almost no money, but also almost zero debt and none of it on a credit card. These bailout measures haven’t and obviously won’t do anything to affect the more difficult areas for me – gas and food prices and other inflationary concerns. If the measures actually did something for average people I’d be all for it, but they don’t, plain and simple.
We are getting a much needed wakeup call from the economy, both personally and as a nation.
But if your situation is truly dire don’t count on government help.
I’ve got debt myself and I’m really barely able to pay, however, these bailouts will push us into a depression like no other! So no, I don’t want them to bail me out, I just want a good job so I can pay my debt. Unfortunately, this economy is going to collapse and spending trillions of more money that the country is either printing or borrowing is only going to make it worse!
Well, I’m totally against the bail outs…all of them.
But since facts are facts, and the government is handing out OUR money (and it is OUR money), I’m going to try to get some. I figure I can get my share, or let the illegal aliens get it, because you know that’s next.
What goes around comes around.
I can use a bail out plan I am paying everything but struggling to pay and feed my children. These are hard time but I thank God for the blessings I have. Hey but if anyone hears anything about help with credit cards let me know.
God bless
I was doing just fine managing my debt to income ratio until the company I work for cut my salary by 50K. realizing I would not be able to make alot of payments I called every one of the companies I owed money to, in hopes they would work with me…no such luck.
My theory now is this… the whole credit system will collapse in about one year as unemployment rises the government continues to bailout companies and ignoring the citizens. we will become fed up and collectively decide that we are not paying. since the gov will clean there mess but not ours. with the American public not trusting or wanting to even deal with the credit institutions, it would be up to them to prove to us they can handle loaning money out without causing another financial mess. there by making what was such a “important” piece of your financial future a non factor(credit score)… and putting the power back where it belongs yours and my hands
I would like to know if a judgement on my debt would qualify me to the bail out or debt relief program I am in a very tight financial burden with my house in foreclosure I am 61 years old please help. thank you..
Don’t leave ou those that paid their mortage payments with cash advances on their credit cards, or those blank checks many card companies mailed out that were really higher rate cash advances. Crdit card companies also OWN many of the debt collection or consolidation companies out there. They get the bad debt off one set of books for pennies on the dollar, write of the bad debt, and then get in line for the bailout for the full amount. The banks advetised, mailed, and force-fed the lavish life style funded by unsecured credit, speculation on home values and then siphoned off their bonuses, and still went crying to the Feds while running interest rates and charges (banking’s free money)
The U.S. can forgive other counties debt, why not their own country’s citizens?
quite ashamed to be an american at the moment—
made it to retirement with the ability to keep house. at 65 am wondering if it would not have been smarter to rent my home and put my money in a safe haven
e.g. FDIC CD’s. After all unless have no mortgage payment, you really do not own the home. I am sitting on even in this market $200K in equity. Cant use it because I can’t pay for it.
Trying to decipher what is the best course for the remainder of my life.
Yes, the Government bailouts were bad. And we now know that there has been little to no oversight in the process leading to 9 trillion dollars unaccounted for by the US Fed Reserve. See this CSPAN Youtube video. http://www.youtube.com/watch?v=cJqM2tFOxLQ
However, the Government has bailed out the credit card companies, and they in part own most of them.. and by extension so do we!!!
Credit card companies are experiencing the highest default rate in the past 25 years. They are desperate for cash and they are willing to negotiate a reduction in your debt if you are willing to pay off the reduced balance. This is the closest thing to a Credit Card Bailout we are likely going to get. Many consumers can attempt to do this on your own, but similar to selling a home on your own, you can do it, but it can be tricky, you need time and experience to get the best result. You can also employ the services of a legitimate negotiation company who will do this for you. Yes, there is a lot of critics of these companies, and deserved in many cases, however that does not mean that ALL debt negotiation companies are not effective. If you want to hire a debt negotiation company to help you reduce your debt you need to find one that has been in business for at least 3 years, has a solid BBB record and is part of USOBA or TASC two organizations who self regulate this service.
So in summary, there are types of services that can bail you out of credit card debt and the time is ripe to do it. You can do it on your own if you have time and aggressive phone skills or you can hire a company to do it for you. In any case now is the time to DUMP credit cards and the scoundrels that run them into the trash.
Just my opinion
I don’t believe in the bailouts and have been really irritated at what our new government is doing.
But I am now in a situation with debt that I can’t repay because we are victims of the economy, too. We DID NOT get some ridiculous loan that is now backfiring on us like so many homeowners did – we chose a responsible one.
We both work full time and bust our tails…but we got screwed when selling our other house that we could no longer rent out (economy) and therefore went into severe debt while we held TWO MORTGAGES for 14 months.
We believe in repaying your debt, but when I called the companies (BEFORE we were behind on payments) to try to negotiate a lower interest rate and/or lower minimum payments until we could get back on our feet, they refused. Now that we are behind in our payments, they call several times a day wanting to “negotiate” because we now “qualify” for their help. However, that is after several late fees, which caused us to go over our limit and then they added over-the-limit fees, etc.
In my opinion, half of our balances are THEIR debt, not mine. I tried to work it out with them and they wouldn’t give me the time of day. Now they want my money and we’re so far behind they can’t have it.
Bring on the bailout.
Huh? I am truly lost here. I don’t understand any of this. Will the credit card company relieve my debt or not? 15-40% on $30,000 credit card debt sounds pretty good to me right now. My family is living paycheck to paycheck, not knowing where our next meal will come from. Together my wife and I make 75k a year, we bought a house last year for far less than it appraised. All of a sudden Citibank decided to raise our interest rate from 7% to almost 16, this on a 30k debt that has never been late in 15 years. We were paying double payments but, when they jacked our rate up we started paying just minimum payments. If they reward good customers in this way we decided to become a not so good customers.. As long as we pay on time and the minimum amount it will not affect our credit score. The government should have let these banks and such fold! Then we as Americans could have seen some relief.
I was doing fine, my credit score was in the 700’s. Then I was diagnosed with an aggressive form of cancer. It took me 2 years to finish all the treatments and surgeries. In the meantime, I was working a lot less, and spending a lot more because of doctors and medicines. I couldn’t afford the medical expenses so I kept putting them on my credit cards. I knew what was going to happen, but while fighting for my life, I didn’t care what would happen after that. I just wanted to win against the cancer (seems that I did, so far, good reports, thank God) The credit card debt was so high, after struggling for awhile, I gave up and stopped paying all of them cause none of them were willing to work with me. Now I’m facing Capital One sueing me and possible wage garnishment (even tho they have been bailed out!) I’m angry with my government because I have worked all my adult life paying my taxes. I believe it’s time our government step up and take responsibility for it’s citizens. That’s what taxes are for! I would prefer my Insurance premiums be given to my government and let them provide my health care. My insurance company was making discisions for my health care that only the doctor should be making. I’m really angry cause a US citizen should never have to be thrown into financial ruin because of a sickness.
You’ve got to call them to try and make a deal.
The state of our economy points out the critical lack of education when it comes to money management. Our marketing machine encourages us to buy on ‘want’ as opposed to ‘need’. If we get into trouble, we are immediately punished with penalties and fees which only add to the problem.
I am currently working with a client who has not made stupid decisions, but lack of financial education has him making moves he would not have considered 2 or 3 years ago.
As a person who was always taught to live within my means, I have been able to avoid this mess. I empathize with those who are angry to have less responsible people get help. However, I also get to see how good people have been punished by an unfair system. Medical issues are the most painful (no pun intended) and people need more help in dealing with this particular situation.
This is going to take a long time to work our way out of and our culture of immediate gratification is going to be sorely tested
Great comment Nancy.
Everyone wants to have their cake and eat it too. Our credit dependent economy would like people to live like they’re playing Monopoly. The scary thing is, this isn’t a game, and when all is said and done, there’s no guarantee we’ll be afforded the opportunity to get our act together.
Every man made currency in history has failed. Looks like we’re doing our part.