Falling behind on credit card payments, or “defaulting” has risen to record levels as a result of the economic downturn, job loss, rising cost of health care, and the tanking housing market. This article discusses options for consumers facing hard decisions about paying their high interest credit cards.

Negotiating with your Creditors

Under ordinary circumstances, your creditors are not obligated to take anything other than the full amount that you owe according to the terms of your contract. In the case of credit card bills, the contract is the current cardholder agreement. Usually, this means that you must make your minimum monthly payment on time. If you are late or if your payment is less than the minimum monthly payment, you may be required to pay a late fee and extra interest. You may also immediately be in default. Depending on your cardholder agreement, the credit card company may be able to immediately collect the entire balance owed.

If you are in default or about to be in default, you can contact your creditors and ask for options to avoid default. These may include a payment plan, a delayed payment, or a reduction in the interest rate. Some creditors will agree to a lump sum pay off that is less than the full amount owed. Remember, that the creditor is not obligated to do so. If the creditor agrees to a payment plan that is different from the current cardholder agreement, you should get it in writing. The worst thing that could happen in this case is that a consumer agree to a modification of terms, and then after paying under those terms, the creditor comes back and then demands payment under the original terms.

Avoid Debt Consolidation Companies

Companies that promise to lower your debt by consolidating your debt often make bigger promises than they can deliver on. These companies often employ some of the same strategies that are discussed above. However, if creditors do not agree to reduced payments, then the consolidation plan will not work. The consolidation company may just end up being yet another creditor that the consumer owes a new bill to. Worse yet, the consumer may end up with a dramatically worse credit report due to the failure of the consolidation company to timely pay bills under the negotiated payment plan.

Avoiding Credit Card Debt through Bankruptcy

If paying your debts is not an option, due to job loss, serious illness, death, or divorce, and if your creditors will not accept a settlement or payment plan, another option is discharging your debt through bankruptcy. Deciding to file for bankruptcy protection is a serious decision with serious long lasting consequences. A bankruptcy attorney in your city can help you decide if you should file for bankruptcy, and what type of bankruptcy is best for you. Some debts are not dis-chargeable, and some consumers qualify for one form of bankruptcy but not others. Again, a qualified bankruptcy lawyer can give you information about the procedures, consequences, and costs of filing for bankruptcy.

Justin M. Baxter
Baxter & Baxter, LLP
Portland, Oregon
(503) 297-9031

http://www.baxterlaw.com