Credit card crash is next

[longbow]

Credit card companies are getting hit hard. Easy credit will die a hard death.....

My brother works for Chase and they are getting hammered by settlement companies to pay off the credit debt on an accellerated plan. He says they have over 55,000 credit card holders in negociations for settlement right now! In dollars its over 5 billion in writedowns for this quarter

Chase, Citi and Discover are taking 25 to 28 cents on the dollar to make the problems go away. However, you have to pay the settlement coordinator 12% of the gross to get it done.


We talked about a guy that had about $100,000 in credit card debt with Chase. He took $28,000 cash and the settlement guy said he got $12,000.

So the guy dumped his credit card bills for 40 cents on the dollar.........I was told Chase will still make money due to all the finance charges they rake in each month on all the minimum pay people out there.

I've got less than $4,000 in credit card debt and it will be gone soon. I'll be credit card free in 5 months- thank you. I don't have any credit cards in the wallet or in the wife's purse.


I have no clue how this will hit the entire banking industry as this problem grows

 

[Scutter01]

Maybe I'll finally stop getting 2-3 credit card offers in the mail per day. I don't even use the damn things.

 

[CarmelHP]

The housing market has been subsidizing the credit card market for years. People kept rolling over their high interest cards into equity credit until they got so out of whack that they could only get high-interest mortgages. Now that the housing market bubble has popped, all the rest of the house of cards is falling after it. Hang onto your hats, it's going to be a bumpy ride.

 

[turnandshoot4]

So, how do you save yourself? Keep credit card debt? Pay off credit card debt? Why?

 

[cougar_guy04]

It's real simple for me . . . I don't have a credit card, just a debit card, checks, and (very little) cash.

I never saw the allure of one and have never wanted one. I have a feeling I might need to get one though (I'm trying to avoid it at all costs though).

 

[Disposable Heart]

Chase has always been in trouble, just look at their stock history. You will get this type of fearmongering whenever the parent company is in trouble. Heck, someone farts in the office, they claim they have lists. This is just a sign to who ever is interested in buying Chase out that Chase is willing to become more "efficient".

Realistically, this only applies to the 90% of Americans that own cards that do not use them correctly. If you are CONSTANTLY late on your payments, then you will have something to worry about anyways. People tend to fear what they do not know. If you make your payments (correction, pay more than the minimum, way more), then you have nothing to fear. Also, notice the companies: Chase, Discover, etc...

Does anyone even own a Discover card anymore, not to mention know of a place that still takes their cards?

This is up there with buying gold now at historically high rates because it may do you good in the future (you will only lose money on it now). Gold cant feed your family. Bags of rice and ammunition for raids will!

 

[Pete-FWA]

...If you make your payments (correction, pay more than the minimum, way more), then you have nothing to fear. Also, notice the companies: Chase, Discover, etc...

Does anyone even own a Discover card anymore, not to mention know of a place that still takes their cards?...

Paying one's individual debt on credit cards to zero is excellent advice. Even if a loan is required, this usually yields a far lower interest rate on the debt you're paying.

This is where self-restraint comes in. As mentioned, many took home equity loans to pay their credit card balances. Good move if you can't pay your credit card debt quickly.

The problem is when people start charging again.
People want it all and want it now: credit cards make that a reality for too many people. Now they have a zero balance credit card they can fill up, but the home equity or personal loan balance is still there. Uh-oh

Look at the bigger picture, beyond just an individual's finances. This is what CarmelHP is talking about.

What happens when people in such instances file for bankruptcy? It hurts the bank and any other creditors which may often be small businesses that these people owed.

This debt doesn't just disappear. It gets passed through the economy. While in the grand scale, a few BK's don't put a blip on the radar. When more and more people file and more people are being foreclosed, the ripple gets bigger. Costs rise and/or services decline to compensate for lost revenue. Banks lay off or terminate people as cost cutting measures. It gets tougher for people to purchase things they may need or want. Discretionary spending may drop, further slowing economic activity.

My perspective on credit cards is different than most. I use them when necessary, meaning, when cash isn't an option and a merchant won't take a check. They're not "fun money" or for frivolous purchases. Keep your personal budget in mind-the total spent each period (week, month, etc) should be the same whether its cash, checks written, or credit card purchases.

Also, I have a Discover Card and see plenty of businesses that readily accept Discover Card. I also know many people who carry and regularly use their Discover Cards.

 

[Disposable Heart]

I like your perspective. In college I used to "write checks my butt couldnt cash" (HAHAHAHAAHAA), but with no support from the parents, I had to . I am considered luckey to only have 15K in student loads and two credit cards to pay off. However, this was only with hard hard work, numerous jobs, and weekly scams (I was the king of 'em!).

Would the "recession" or "recession like tendencies" of today's markets be a "ripple" as you say? I have always been interested in economics and love to talk about it, specifically to learn about it. Lack of spending+bad loaning market=recessionary tendencies?

 

[turnandshoot4]

Ok. I have a credit card with 0% intrest until April. If Chase goes under and I have a balance, will the debt get erased? If I have a checking account with Chase, will my checking account get drained if they declare bankruptcy?

 

[undecided]

If chase goes under and you have money in your checking as long as it is under $100,000 it is insured by FDIC. As far as credit card debt chase is way to big of a company to just go out of business. Someone would buy them if they were in that serious of trouble and then you would owe the money to the new owners.

 

[CarmelHP]

Even if Chase declared bankruptcy and closed their doors, your credit card debt is an asset that would be sold to someone to collect.

 

[NEOCON]

I gave up credit cards years ago. I don't make payments on anything but my house and in a couple years those will be gone too. It is amazing how much money you have when you don't pay interest to the banks before paying yourself. I recomend everyone stay away from any type of credit credit card. Even if you pay it off every month. If you are not pulling that cash out to make a purchase you don't feel the pain and usually spend more than you would otherwise. Plus how many times have you been charged for special fees simply because they didn't post your payment on the right date or screwed up somehow? I've been a Dave Ramsey fan for years and follow his teachings.

I thought that I heard somewhere that an investment bank wasn't protected under FDIC like a regular bank or CU. I may be wrong but it seems like I heard talk of this recently. It should be easy to find out for sure though.

 

[Feign]

I've been tossing the idea around of loaning myself some money from my 401k and calling up one of my CC companies to do just this. Offer them a pittance amount and just get rid of the balance...

 

[CarmelHP]

Deposit accounts (checking, savings, CD) are insured up to $100,000 per institution. If you have other types of accounts, those are generally not insured (e.g. brokerage accounts, mutual funds). If Chase were to float belly out the insurance reserve would be wiped out pretty quick. In that situation though, the banking system would be so sick that we would have much bigger problems.

But who cares? I see people everyday slavering at Obama rallies reminiscent of Nuremburg. My fear is that this country will not long remain a nation, whatever happens to the economy.

 

[USPc40]

I've been tossing the idea around of loaning myself some money from my 401k and calling up one of my CC companies to do just this. Offer them a pittance amount and just get rid of the balance...

IIRC unless you are seriously behind in your payments, CC Cos. will not negotiate a payoff less than your balance. If you are behind this may be a option. If you are not behind may I suggest stopping your 401k contribution and putting that money toward the CC balance until it is payed off, then resume the contribution again. Borrowing from your 401k may cost you more in the long run. My 2c.

 

[pierce195]

I see it everyday that people are living over their income level on CC's. Going into rented homes with big screen tv's, Playstation 3's, and other high dollar items for people living off the government.

 

[NEOCON]

IIRC unless you are seriously behind in your payments, CC Cos. will not negotiate a payoff less than your balance. If you are behind this may be a option. If you are not behind may I suggest stopping your 401k contribution and putting that money toward the CC balance until it is payed off, then resume the contribution again. Borrowing from your 401k may cost you more in the long run. My 2c.

Very good advice!!

 

[Disposable Heart]

Thankfully I dont have a 401K. I run with an IRA (not the Irishmen)! You can pay less into it (and when you can, it doesnt automatically come out of your check, especially in an emergency if you need that extra money).

 

[kludge]

Jan 1, 2007 my wife and I started a new budget... in rough numbers we had $4500 in CC debt, and about $3000 left on a car payment, medical bills, rising health insurace, property taxes, etc.. I expained the envelope system and put us on a bare bones budget. She has always run the checkbook, but she wasn't on board with the new system. Then after a month I heard Dave Ramsey on the radio and said, "you gotta listen to this guy." Well, he had a way of expaining things and she was pumped, and bought his book and started the "baby steps".

She has been wanting a bigger house for several years, and was always calling me to go look at properties... the only way to afford a bigger house was to get better at finances.

This week she wrote the last check on the car payment and we are debt free except for our new house.

In one year and four months we paid off all our credit card debt ($4500), eliminated our car payment (~$3000, bought it on a $10,000 loan), medical bills (~$3000), bought a bigger van for our 5 growing kids with cash ($6700), sold our old house (lost $20,000, and we count ourselves lucky!) built the new house my wife wanted (I got a 3-car garage!), and last week refinanced it from 30 years at 6.875% to 15 years at 5.125% (>$4000 closing costs, paid cash - including $1800 property tax escrow - saving us $124,000 in interest payments), in addition to that we have 3 months of living expenses, in cash, in the bank, for emergencies, and have started food storage and have ~3-6 months of the basics.

We absolutely stopped using the credit card, went on a strict cash written budget, no restaurants, plan our expenditures months in advance.

When we stopped using the credit card and paid it off, all of a sudden we had money coming out of our ears, as you can see by the list of things we paid for with cash in the last 16 months. The credit and debit cards were nick-and-diming us to the tune of ~$700 a month from what I can tell. Add that to the $265 car payment and $40 a month in interest charges and we can really sock the money away.

We took my bonus, tax refunds, etc. paid things off and stuffed the rest in the bank.

Our "economic stimulus" is going in the bank too. Once you get in the habit, it's a lot of fun. I dropped out of the 401k to pull it off (good advice, USPc40!), but will be starting it back up at the end of this quarter, and even then my wife says we are on track to 6 months of cash in the bank by the end of the year.

 

[USPc40]

Thanks NEOCON and kludge. I have also read the Dave Ramsey book and listen to his show when I can.

Thankfully I dont have a 401K. I run with an IRA (not the Irishmen)! You can pay less into it (and when you can, it doesnt automatically come out of your check, especially in an emergency if you need that extra money).

If your employer offers a match to your 401k contribution,(say up to 5%) you could contribute that amount to the 401k, and put the rest into a Roth IRA. It's like getting free money from your employer for retirement.