The modern version of today’s credit cards has been in existence since the early to mid 1900s. Initially it was used to purchase and sell fuel to the ever growing number of automobile owners. Later it was used by the airline industry to allow flyers to buy their tickets now, and pay them later. In the late 1950s, Bank of America began to issue the “BankAmericard.” This was the first credit card to be used for purchases that was accepted by a great variety of merchants and other retailers. The BankAmericard was the first successful attempt at creating a revolving line of credit for consumers. Today, credit cards are issued by literally thousands of different banks, retailers, and service providers.
Credit cards are a big business in today’s society as most American households have at least one (if not more) credit card. Credit cards provide us with buying power to purchase goods and services that we normally may have not been able to afford. As with all debt, the charges made on these cards need to be paid back according to the terms of the credit card agreement. Americans charge approximately $1 trillion dollars every year in new credit card transactions. The average credit card debt for all Americans is around $850 billion as of April 2013, with the average household credit card debt hovering around $15,000.
When you consider the amount of interest that is charged on the average household credit card debt, it translates to big profits for credit card companies and the banks that issue them. Total earnings for the credit card industry for 2011 were around $18 billion. Some of these earnings are a direct result from the interest that is charged on a monthly basis. However, the bulk of the credit card company’s profits are a direct result of the over-the-limit fees and late payment fees that may be assessed.
Because of the sheer size of the credit card industry, and the profits involved, it makes the business a breeding ground of potential corruption and deceptive business practices. As such, the credit card industry is no stranger to being on the receiving end of class action lawsuits. In 2001, Providian Bank (no longer in business) was ordered to reimburse some of its cardholders or $300 million. These monetary damages were awarded as a result of misleading sales pitches, and charges assessed to their customers for products that were never purchased. HSBC (now owned by Capital One) settled for around $23 million because of the company’s payment protection plan that it offered to its customers. Similar cases were settled with Capital One, Chase, and Discover which were in excess of $10 million each. In 2011, Bank of America agreed to settle a claim over credit-protection services that they offered their cardholders. Their customers claimed they were enrolled in useless programs or plans that offered little to no benefit to them. These services were charged without a customer’s authorization or obtained through deceptive marketing. The preliminary settlement was approved for around $20 million.
Consumers who find themselves in credit card debt with no foreseeable way out, do have options available to remedy the situation. Whatever option you choose, do your homework carefully. You will want to consider the cost involved, the length of time, credit impact, and the reputation of who you will be working with (if you choose not to handle it on your own).
The options available include:
Do it yourself: Managing credit card debt problems can be a daunting task if handled on your own. It requires perseverance, foresight, responsibility, and time. It can be done, but many of us do not have the time. In addition, having personal emotions involved when dealing with an issue such as this may just exacerbate the problem.
Financial Counselor: Individuals that specialize in personal finance and debt issues can be helpful. However, many times these are just one time meetings. Typical credit card debt problems require months if not years to clear up and usually require several meetings to achieve the desired results. Any potential counselor you choose should be affiliated with legitimate organizations or have designations which prove their competence in the area.
Consumer Credit Counseling: These are typically non-profit organizations that may be subsidiaries or affiliates of the credit card company. You make a monthly payment to the organization and they disseminate the payment amongst whatever creditors you included in their program. These organizations negotiate only the interest rate on the credit cards. The consumer will normally payback the full balances on these programs as well as the interest rate that was negotiated, and their “donation” fee. Programs such as this are normally last three to six years.
Debt Settlement: There are hundreds of companies and law firms that offer debt settlement programs. These programs require you to make a monthly payment that is deposited into an account they setup for you, or it is saved directly by the consumer. As your monthly payment builds up, an account is settled and the process repeats itself until all the accounts have been handled. Pay attention to the fees that organizations such as this may charge and how they collect them. It is important that you do your research on these companies and check the Better Business Bureau. If the company you want to do business with is a member of other organizations be sure to check their track record with them also.
Bankruptcy: If you are under a great deal of credit card debt and have no prospective way to eliminate it, bankruptcy may an option to explore. Typically, the initial bankruptcy consultation is free with the majority of law firms. Bankruptcy is not for everyone and may have some drawbacks. It is important to know exactly how it will affect both your finances and property, as well as the possible impact on your credit.