Category: Consumer Debt

Millions of consumers are always looking for ways to get out of debt as quickly and easily as possible, but experts say one problem many may face is that they simply don't know how to begin doing so the right way.

Consumers who want to reduce debt and then keep their credit card balances low in the future need to do all they can to prepare for the process, according to a report from the New York Daily News. And often, experts recommend that the best way to do so is to start at the beginning. That means consumers should take the time to make a careful accounting of everything they owe.

When doing so, consumers should consider everything about these balances, such as how much they owe, how much will be added in interest or by fees on the accounts, and how much they would like to contribute to those debts every month in an effort to reduce them reasonably, the report said. Doing so for all credit card accounts they have will give them the full picture of their financial situation and help them to be realistic about how they'll be able to cut those debts.

When going through these accounts and seeing how much you'll need to contribute to the monthly bills to get out of debt within a given timeframe, consumers might also want to look at other aspects of their finances, particularly how much they spend every month, the report said. That's because taking the time to identify areas of inefficient spending might help them find places they can shore up their finances and cut out the waste, then put that money toward cutting outstanding balances.

In addition, consumers may want to look for new ways to increase their income, which can also help them reduce debt more quickly, the report said. This can include getting a job on the weekends or seeking out more overtime from their current employer when they have the time.

In recent years, consumers have been far more conscientious about cutting their credit card debt, and as a consequence have been successful in doing so. Rates of delinquent and defaulted credit card debt have fallen precipitously for all major lenders in the U.S. as a result of consumers increasing the value of their payments and borrowing less.

A company that specialized in collecting bad debt from consumers has been ordered to stop operating in Colorado.

The order bars Regent Asset Management Solutions and its chief executive officer, Michael A. Scata, from engaging in debt collection, for which it was not licensed, according to an announcement from state Attorney General John Suthers. In addition, the company must also pay the state $70,000 in civil penalties for violating the Colorado Consumer Protection Act.

The decision is the result of a December 2010 lawsuit that alleged the company collected debts from consumers in the state even after its license to do so expired in July of that year, the report said. Further, Regent also failed to provide consumers with adequate proof that they owed the debts it was trying to collect, often leaving them unable to determine the accuracy of the claims being made against them.

A number of debt collections agencies have been shut down by authorities across the country in recent months as a result of illegal collection methods. This underscores the importance of consumers knowing their rights when it comes to dealing with this type of company.

The amount consumers borrowed from creditors fell in September as consumers continued to either reduce debt or failed to take on new lines of credit.

Consumers across the country cut the amount they owed more or less across the board, prompting the amount owed to lenders to fall by $9.5 billion between August and September, according to the latest monthly statistics released by the Federal Reserve Board. And while in the past, consumers typically cut revolving credit – the type commonly associated with credit cards – the larger decline was caused by a dip in nonrevolving credit – installment loans not including those for mortgages – which dropped $7.3 billion.

"Consumers were cautious over taking on additional debt at the end of the summer after the volatility in the stock markets and the uncertainty caused by the failure of Congress to work together to bring down these trillion-dollar deficits," Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, told the news agency.

Consumer credit card debt has been declining significantly for some time now, as fewer consumers may be willing or even able to take on larger balances.

The financial problems suffered by many consumers over the last 10 years could lead to significant problems going forward, giving America its own version of Japan's infamous "Lost Decade."

Industry experts believe the recessions suffered in the wakes of the terrorist attacks on September 11, 2001, and the subprime mortgage meltdowns could slow economic growth for some time to come, according to a report from CNN Money. These problems could last another six or seven years before more significant improvements in consumer spending are observed.

"I think we're in for a lot of disappointment," Carmen Reinhart of the Peterson Institute for International Economics, and an expert on financial crises, told the news agency. "If historic norms hold, deleveraging isn't pretty, and it is not a smooth process. We're already four years into this. I don't think the next six years look great."

It would be similar in many ways to the lengthy financial problems experienced in Japan after its real estate market nearly went belly up in the 1990s, the report said.

Many problems in the U.S. may have been driven by vast amounts of private sector debt, leading to many consumers looking for ways to to reduce debt and find an alternative to bankruptcy.

Consumers eager to reduce debt may soon find that they have more difficulty doing so because of major changes to the lending industry brought on by the implementation of new rules for debit cards.

In an effort to recoup revenues that may soon be lost to a limit on debit card transaction fees, many of the nation's largest financial institutions are now adding charges and penalty interest rates to most credit and debit accounts, according to a report from CNN Money. For example, Bank of America recently announced it would begin implementing a penalty interest rate of nearly 30 percent on delinquent credit card debt, in some cases after just one missed payment.

JPMorgan Chase, meanwhile, is considering imposing a limit on the total value of a debit card purchase, the report said. The major bank has weighed restrictions of either $50 or $100 for any purchase on this type of account.

The proposed rule, which cuts debit card transaction fees by about 70 percent of the current average, has not yet been implemented by the Federal Reserve Board.

The total amount of debt held by Americans nationwide fell to $13.4 trillion, the second straight year in which consumers reduced what they owe to lenders, according to the latest statistics from the Federal Reserve Board. Meanwhile, the net worth of all U.S. Households rose to $56.8 trillion duringthe fourth quarter of last year, up $2.1 trillion from the previous three-month period, based on assets of $70.7 trillion.

Many consumers have been able to successfully reduce the amount of debt they carry by limiting purchases, particularly made with credit cards, and increasing the amount they pay into their outstanding balances every month.

Some also may have seen their debt reduced not because of more conscientious bill payment, but rather as a result of bank write offs. However, all major banks in the U.S. have reported continual declines in the amount of delinquency and charge offs they saw for credit card debt in nearly every month for the last two years.

Household debt has fallen from more than $12 trillion nationwide to figures ranging around $11.5 trillion. But considerably more than half of the $1.1 trillion drop in consumer debt has been the result of banks striking bad accounts from their records, according to a report from Time Magazine. In all, $695 billion of that $1.1 trillion has come from debt being written off, with the remaining $375 billion being the result of more conscientious bill payments by consumers.

In all, about $8.5 trillion of the nation's outstanding household debt is tied up in home loans, while credit card debt, totaling $730 billion, makes up the next-largest credit type, the report said. Auto loans followed at $710 billion.

Many consumers have tried to be responsible in paying back their outstanding debts in recent months, but money problems may have been exacerbated by ongoing unemployment that led to defaulting on loans.

Given the current unstable economy and high unemployment numbers, many Americans are taking steps toward credit card debt reduction.

Capital One, Discover Financial and Bank of America reported today that late payments on credit cards fell to their lowest levels of the year.

The October numbers are a signal to many economists consumers are conducting better credit management, making timely payments and reducing their debts, ABC reports. Discover found its delinquency rate fell from 4.41 to 4.34 percent, while Capital One's figures declined 1.12 percent.

"It's nice to see that consumers feel more confident in at least being able to pay their other bills," RBC Capital Markets analyst Jason Arnold told ABC. "We still have a very slow recovery ahead of us, but it's encouraging to see the seasonal trends being overwhelmed by credit performance."

Charge offs, credit debt that banks don't believe will be collected, also fell for most of the major companies. The lone exception was Bank of America, which saw its numbers climb to more than 10 percent, after falling to 9.99 percent in September.

A total of 428 consumers in one Pennsylvania county have been hit with lawsuits over their delinquent credit card debt in the past two months alone, according to a new report in the Lancaster Sunday News. Lenders like Citi, Capital One and Discover have been filing suits at or near record levels for the last two years, but more have joined them in becoming more aggressive recently, even as they’ve seen the total number of nationwide charge offs decline considerably. Experts told the paper that the number is only expected to rise in the future.

In addition to civil suits from lenders, collection companies who purchase credit card debt from them are also boosting the number of court cases, the report said. This new trend seems to specifically target consumers with clean credit histories, though many agencies don’t have documentation for the cases.

Nationwide, consumers have been more conscious of their credit card debt problems in recent months. As a result they have scaled back spending while increasing their savings and paying off more of their balances.