Delinquent credit-card accounts have risen to an all-time high. Credit-card issuers are instituting new payment policies upping minimum payment requirements, and raising rates at the same time. Add in the new bankruptcy law, which takes effect on Oct. 17, and the forecast isn’t pretty, according to Brad Stroh, co-founder and co-CEO of Freedom Financial Network, LLC.

Beginning this month, most lenders are instituting new minimum-payment policies to comply with requirements of the Office of the Comptroller of the Currency (OCC). The new policies require minimum payments to cover interest, fees and a portion of the loan principal each payment period. As a result, borrowers will see their minimum payments increase from approximately 2 percent of the principal balances on their credit cards to 4 percent, meaning a doubling in payments for many.

This material increase in monthly minimums comes at a time when the American consumer is already overburdened. Last month’s increase in interest rates by the Federal Reserve – the 11th straight – brought rates to the highest level in more than four years. “This directly hits a borrower’s pocketbook, because credit card and unsecured debts typically carry variable rates,” explains Stroh.

Recent news from the American Banking Association puts delinquent credit-card accounts at 4.81 percent of all accounts, a record high. Nearly all other types of loan delinquencies also are on the rise, the organization says. Stroh attributes this increase to several factors whose combination puts ever-greater numbers of American families in financial crisis, and he suggests debt-relief options consumers can use:

1. Cost of living increases – Prices continue to rise for essential items ranging from gasoline (up 31 percent in the past year, according to the Consumer Price Index) to health insurance (with employees paying 64 percent more in health care costs than they did five years ago, according to the 2006 Towers Perrin Health Care Cost Survey).
Solution: If you’re struggling with credit card debt, stop charging and live within your means, even if it means a spaghetti-only diet. Find out if you can carpool, use public transit, or work from home to cut transit costs. Turn the furnace down this winter. “But do keep a health insurance policy in effect,” Stroh says. “People run into serious financial trouble if they’re hit by an unexpected, enormous medical bill.”

2. Rising credit-card interest rates – Eleven sequential interest-rate increases by the Federal Reserve have led to big hikes in credit-card interest rates, after rates were low for several years during the U.S. recession of the late 1990s and early 2000s. “If consumers got into irresponsible habits during that time – or were driven by emergencies to rely too much on credit cards – they’re treading water now just trying to catch up,” Stroh explains.
Solution: Pay off cards fast, putting the largest payment on the card with the highest interest rate until that card is paid off, then paying off other cards in descending order. If you have good credit but see your rates climbing, call your creditor to ask for a lower interest rate. If you’re having trouble meeting minimum payments, you might try negotiating with creditors and asking for temporary hardship status, where a creditor sometimes agrees to a lower payment for a longer term of credit.

3. Increase in credit-card minimum payments – Stroh reminds borrowers that the intent of the higher payment is to help consumers pay off their debt faster, with less of their payment going to interest. “But for someone who is already struggling month-to-month, that higher payment just means an even bigger source of financial agony.”
Solution: If you can pay the higher payment, do so. If not, don’t panic and don’t rush to thoughts of bankruptcy. Talk with a debt advisor – he or she can help you determine whether debt resolution could help by negotiating with creditors on your behalf to lower principal amounts due (you would then pay the debt resolution firm a percentage of savings obtained). Savings can be as much as 60 cents on the dollar – typically much better than Chapter 13 bankruptcy’s repayment plans offer – and with no bankruptcy judgment on long-term records.

Freedom Financial Network, LLC (www.freedomfinancialnetwork.com) provides consumer debt resolution services through its Freedom Debt Relief, Freedom Foreclosure Relief and Freedom Tax Relief divisions. Working for the consumer and negotiating with creditors to lower principal balances due, the company offers an alternative to bankruptcy, credit counseling, and debt consolidation. Based in San Mateo, Calif., Freedom Financial Network serves more than 3,000 clients nationwide and manages more than $100 million in consumer debt.

Source: EMEDIAWIRE