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Erase credit debt

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  1. Jul 7, 2009 #1
    We've all heard the advertisements that claim they can get rid of your credit debt if it's 10,000 or more...and I know a few friends-of-friends who supposedly had massive credit debt that was just erased.

    Is there really an established procedure for this? Is it that easy to rip off the credit companies? What are the repercussions? I'm only curious.
     
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  3. Jul 7, 2009 #2

    russ_watters

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    Absolutely: it's called bankrupcy.
    Near complete loss of credit rating for seven years.
     
  4. Jul 7, 2009 #3

    Pengwuino

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    Although maybe this isn't the case anymore, but you would usually be approved for credit from certain companies after only a couple years. The interest rates approached infinity however :rofl:.
     
  5. Jul 7, 2009 #4

    mgb_phys

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    A lot of them simply re-mortgage your house so you swap expensive credit card debt for cheaper secured (on your home) debt.
    Of course if you don't pay - you lose your home
     
  6. Jul 7, 2009 #5

    Moonbear

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    That's my understanding. They don't erase debt, they just pay off the credit cards and consolidate your debt into one big home equity loan type thing. So then your credit cards are all cleared up and you can run up a bigger debt.

    I don't know how people end up $10s of thousands in debt on credit cards anyway. How do you not realize you couldn't pay off last month's bills, so maybe you shouldn't be spending on anything but bare essentials this month? I could see someone getting socked with $5000 that they can't pay off right away...maybe the furnace dies the same month the transmission falls out of the car and you don't have the cash to pay that all up front, but then you know you need to cut out all the frivolous extras and perhaps downsizing on the house, taking in roommates to share costs, or watching the food budget more carefully if you can't pay that off in a year's time.
     
  7. Jul 7, 2009 #6
    My recommendation for erasing credit card debt is to pay it off, and then STOP SPENDING. It seems that people accumulate debt when they start believing that they're entitled to stuff that they can't afford at their income level. What I do is use my credit card to buy only the things that I can afford, and then pay my bill in full at the end of the month. That way the credit card company doesn't get to charge me any interest, and I get to collect interest on money I've already spent. I don't think a credit card company has ever even made a dime off of me.
     
  8. Jul 7, 2009 #7
    Ah, ok...that's one of the things I was curious about.

    However I have heard instances of the debt being simply erased. I know of a friend of the family's who, after being hassled over his large debt for years, finally struck some kind of a deal in which they agreed to ignore all of his debts. I think he was given a clean slate after a couple years.

    I don't even use a credit card anymore. When I did own a credit card, I tried to be quite responsible about only spending the money I had...why would I spend money I didn't have if I couldn't pay it back?

    Despite my intentions, due to a miscalculation I ended up over spending by a couple thousand dollars, and I decided that there was no purpose in having a credit card which is just an accident waiting to happen. Now I just use a debit card. It seems to have no disadvantage (except perhaps that I'm not continually "building credit" by using it).
     
  9. Jul 7, 2009 #8

    mgb_phys

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    In some countries you are charged for each transaction on your account (typically only 25c or so).
    If you are paid monthly and go overdrawn at the end of the month by using a debit card you might be charged $100 fee and very high unauthorised overdraft interest rates, if you use a credit card AND pay it off you don't pay anything.
     
  10. Jul 7, 2009 #9

    turbo

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    If you have set up payment programs using that card, you have probably given your creditors unfettered access to your savings and checking accounts. Is that what you want?

    If you want to use a debit card, you should allow that card access to only a small portion of your assets so that unauthororized uses can be limited. Please talk to a representative at your bank, and try to arrive at some understanding. If you move (physically or virtually) you should hook up with a doctor to monitor your health, and you should hook up with a banker to monitor your wealth. You can find a mechanic, etc down the road, but you NEED professional guidance in these areas, ASAP.
     
  11. Jul 7, 2009 #10

    Pengwuino

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    I have heard of companies erasing part of peoples debts but never the whole thing. The thinking was to make the debt manageable since it was likely the person was going to go into bankruptcy and they company would be out the whole debt.
     
  12. Jul 7, 2009 #11

    Moonbear

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    Same here. It doesn't make any sense to erase the whole thing, but a lot of sense to strike a deal to get a partial payment to get something rather than nothing. Then you're at least a bit further ahead than if they file bankruptcy and you get nothing anyway. For example, a company might get someone to pay down the principle on the debt and forgive some or all of the interest (though, depending on how long someone takes to pay off a loan, maybe that's what happens...they've actually paid back the original purchase price a few times over through the interest payments, and what's remaining is just the compounding interest...then it might be worth cutting them loose to run up a new debt).
     
  13. Jul 7, 2009 #12

    cristo

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    If you use a credit card properly, then you can make money; pay for something on a credit card while the money you would use to buy it is in a savings account. A month later, pay off the credit card bill and you will have made a month's interest on that money.

    However, the main benefit (at least in my opinion) of using a credit card is the protection you get. In this day and age, it's difficult to predict whether the company you've just bought your holiday off (say) is about to go bankrupt. If they do, then your money is automatically protected if you use a credit card but not if you use a debit card. I also use a credit card for most internet transactions for the same reason.
     
  14. Jul 7, 2009 #13

    Pengwuino

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    Doesn't that only work in the unlikely situation your interest rate on your CC is less then the rate on your savings account?
     
  15. Jul 7, 2009 #14
    If you pay on time then there is not interest. cristo is saying you'll get a month's worth of interest at most.
     
  16. Jul 7, 2009 #15

    cristo

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    Yup; sure, it might not be a massive amount you'll earn, but as my gran used to say "look after the pennies, and the pounds will look after themselves"
     
  17. Jul 7, 2009 #16

    Pengwuino

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    Ah, you got me tripped up by saying "a month later". I was thinking a month after you got the bill :rofl:.
     
  18. Jul 7, 2009 #17
    In short, what are the new laws limiting bankruptcy in the U.S. compared to, say, a decade ago?
     
  19. Jul 8, 2009 #18
    There is usually a statute of limitations on debt retrieval. This does not stop collections agencies from trying to come after you for the money. It is possible that they are simply "getting rid of" debt that is no longer legally owed anyway.

    There is a similar scam where a company will contact yiou and tell you that there is money owed you by the state held up in red tape and that they can get it for you for a small fee. The reality is that you can get the money for yourself for free just by filling out a form that the state will supply you.
     
  20. Jul 8, 2009 #19
    While it is true that people should live within their means and should be responsible for their debts, credit card banks contribute a significant amount to the problem of the debt burden. Credit card banks make all of their money on late fees and interest, sometimes they skew the field so that they make it almost impossible for a lot of people to pay off their debt.

    Why should a credit card bank be allowed to jack up interest rates on previously accumulated debt?

    Why should a customer be charged outrageous over the credit limit fees when the bank could easily help out the consumer and simply deny the transaction in the first place if the consumer reached their credit limit?

    Why should banks be allowed to allocate all payments to lower interest rate balances first before higher interest rate balances are paid off?

    Consumers should use credit responsibly, but lenders should also lend responsibly. Banks shouldn't be giving college students who have no jobs credit cards with $10,000 credit limits
     
  21. Jul 8, 2009 #20
    Because that is all included in the contract you agree to when you get the credit card. If you don't like the terms they offer, don't use their service. For the first, instead of getting a "floating rate" credit card, get one with a fixed rate. For the second, usually if you contact the institution they will set this option upon request. The third bugs me too, I'm pretty sure you'll find it in your credit agreement, which you should have signed. The obvious reason that they do this is that banks are in business to make money, and they make more money off of the higher interest rate balances than the lower interest rate ones.

    Banks are in business to make money. If they didn't expect that the person will be able to eventually pay back then credit, they wouldn't have given it. If the customer doesn't pay back the money, the bank eats that loss (either directly, or indirectly through insurance).

    Just remember, when you're dealing with a business, their legal responsibility is to maximize profit for the shareholders, not to look out for the customer's best interests. That's your responsibility, not theirs.
     
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