Credit Card Interest Rates Increase Minimum Required Payments
One of the most common triggers for today’s bankruptcy filings results from people having significant credit card debt on which they barely able to make the minimum payments.
Everything goes along fine for months, maybe years, until suddenly–and frequently unexpectedly–the interest rates on their credit card(s) jumps from a very low (or zero) interest rate to over 22%!
The main reason this happens is when the cardholder defaults on the cardholder agreement.
This could be as simple as missing or being late on a payment, or more unexpectedly because you simply have too much overall debt.
And when you default on one card, all the others find out and can raise their rates too.
It Takes Very Little To Cause A Default On Credit Card Payments.
My favorite story of the week comes from a debtor who had two credit cards with the same Bank.
She faithfully made her monthly minimum payments but mixed up the checks and put them in the wrong envelopes.
One of the checks was insufficient for the payment on one account, so the interest rate increased resulting in a minimum payment she could no longer afford to make. She ultimately had no choice but to seek information on possibly filing a bankruptcy case.
I see, all too often, people skating by on the edge and it takes very little to push them to the bankruptcy precipice.
Are You Just Making Minimum Payments On Credit Cards?
If you are barely able to make just the MINIMUM payments on your credit cards, this is a warning sign!
You should already be considering bankruptcy as an option.
Because even if you continue making only the minimum payments, you will never pay off those debts because nothing (or only a very small amount) goes towards the principal.
You are essentially just treading water at that point. And even if you incur no new debt, you will continue treading water until your disposable income increases to a point where you can pay down the principal on your cards.
But most people I’ve spoken to CONTINUE to incur debt even while they are treading water, making minimum payments on their cards.
So the total debt gets higher.
The minimum payments get higher.
They start defaulting.
Many borrow from their retirement or friends and family just to keep making the payments.
Others take out uber-high interest “payday loans.”.
After they have literally depleted all their assets and options, they call me.
And these are assets that could have been protected in their bankruptcy case!
Considering Bankruptcy Sooner Could Save You Thousands Of Dollars
I have written before about bankruptcy being a last resort of many.
The people mentioned above could have filed bankruptcy months, perhaps years earlier, discharged their debts, and walked away with $20,000 in their bank account (or in their retirement accounts, etc.) to help with their fresh start.
Instead, many deplete their assets and, after getting their bankruptcy discharge, they are literally starting from ground zero with no safety net.
This is a formula that causes the need for future bankruptcy cases because they lean on credit cards again to survive.
This vicious circle can be avoided by having a consultation with an experienced bankruptcy attorney as early as possible.
If you are only making minimum payments to your creditors, it is time to examine your bankruptcy options.
Image courtesy of Frankieleon