Credit Card Debt Forgiveness Proposal
There is a very interesting proposal being floated around Washington these days. I was quite surprised to hear that some consumer advocate groups and banks are working together to try and come up with a plan that would forgive some consumer credit card debt.
The reason being, and what has been discussed recently here at www.BestCreditQuote.com, is that charge-offs are becoming more and more frequent and are hurting the economy as a whole. Charge-offs occur when credit card debt is not paid and the credit card company takes the loss.
Charge-offs have been steadily rising the past two years and currently stands at a rate of 5.7% in the second quarter of this year according to the Federal Reserve. Delinquent credit card accounts are currently at a six year high of 4.9%. The great concern here is that when you couple these troubling numbers up with the mortgage credit crisis, you end up with a credit situation that will be extremely deleterious to the economy.
Individuals that qualify for this pilot program must be teetering on the brink of bankruptcy. 40% of their credit card debt will be forgiven while the other 60% would be interest free and must be paid off in 5 years. The program will begin with 50,000 people and expanded if successful.
The upside for the banks is basically, something is better than nothing. It is becoming more and more difficult for banks and credit card issuers to collect debt, and that obviously puts a financial strain on them. For consumers it allows them to jetison some debt while hopefully re-establishing themselves on better financial footing.
Whether this bold new plan succeeds or not remains to be seen. I agree with the proposal’s advocates that it is worth a try. The benefits have the potential to far outweigh the negatives and with fewer declared bankruptcies, the U.S. economy will feel less strain. We will definitely stay on top of these develpoements and keep our readers informed.
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