Borrowers Must Challenge Credit Card Debt Charges

It is recommended that every borrower must challenge credit card lawsuits, according to Felix Salmon, who is a Reuters blogger.

This recommendation is to some extent valid. For instance, the case of Bank of America and its credit card division showed that creditors have the capacity to force collection bureaus to pursue debts that are not valid. This consequently puts the collection bureau into greater jeopardy than Bank of America imagined it would be in itself.

If the debt is in reality not valid, then it would seem right for the consumer to challenge a lawsuit.

In contrast, Salmon’s recommendation becomes odd when he said that borrowers must not be afraid to require a proof out the upright feeling that they must pay off their outstanding debt.

This is not in the best interest of a lot of persons who are in some way associated with the consumer.

First is the creditor, who gave the loan to the borrower for him to use in whatever he thinks he should buy.

Second is the collection bureau, which now has the responsibility to take care of a borrower who believes he is not to blame for the liability he made.

Third are the borrowers who pay their credit card debts in good time.

Fourth are the borrowers who have to sort out higher costs because of the consequences of poor retail debt.

In addition, Salmon has a poor conclusion. He said that if all persons begin to challenge the lawsuits as a whole, then that will certainly lessen the advantages, to the financial institutions, of advertising written-off debt to corrupt collection bureaus as a whole.

However, it is probably unreasonable to classify collection bureaus who buy credit card debt as corrupt. It weakens a significant component of the receivables management business. Also, it weakens the business that places persons to work in all types of profitable settings.

Increasing Student Loan Debt

Most recently, a report showed that there is an increase in terms of the debt load of both college students and college graduates.

Specifically, the report according to the Federal Reserve Bank of New York states that balances having overdue payments of a month or more reached up to 27 percent of the 37 million borrowers.

According to the same report, a result of an analysis of credit reports from Equifax, the balance of student loans that are not yet fully paid amounted to more or less $870 billion. This figure unexpectedly exceeded the overall credit card balance, which is $693 billion, and overall auto loan balance, which is $730 billion.

The outstanding student loan balance is estimated to maintain its increasing trend because of the increasing college enrollments and growing costs of attendance.

As stated in the report, the average outstanding student loan balance per borrower is $23,300.

Moreover, according to The Washington Post, one-third of the outstanding student loan is held by individuals between the age brackets of 30 years old to 39 years old. On the other hand, another one-third is held by Americans older than 39. This means that only a few of the college graduates fully pay their student loan while they are still in their 20s.

In addition, the report stated that compared to other types of household debt, for instance, credit cards and auto loans, the student loan debt is much more complicated. In particular, student loans include a lot more stakeholders, such as government, families and other relatives, banks, colleges and universities.

The report stated that student loan is not only a problem for the young but also parents and the federal government because a significant portion of the post-secondary education bill is carried by them.

Colleges and universities were urged by President Barrack Obama to reduce their costs. Also in fall of the previous year, 10 percent of the discretionary income was the limit of monthly loan payments.

Collingswood Remains at Junk Status; Moody Gives Chance for Upgrading

Moody gives hope this week to Collingswood’s bond credit rating to be improved. The agency has retained Collingswood’s Ba1 (junk status). However, from a “negative” rating, there is a moderate upward step for the borough’s credit rating to “uncertain.”, Moody said.

It is very difficult to loan money if the credit rating is poor.

Moody did a massive downgrading of Collingswood in September of 2011. Despite protests from the officials of borough, the rating was maintained up to November after performing a review. One important factor taken into account by Moody in giving the borough rating was the $28 million outstanding long term and general obligation debt. But Moody upgraded Collingswood’s rating after signing a settlement deal that it will refinance the $4.5 million debt linked to project which involved Lumberyard construction. Collingswood is the guarantor in this project according to Moody.

This unbudgeted refinancing settlement exceeds the fiscal 2011 unaudited year-end Fund balance amounting to $1.05 million. This unbudgeted payment also reflects 26% of expenditure which is to be added to the current debt service which is 14.4% of expenditures.

The fiscal budget of Collingswood for 2012 will be decided at the meeting of commissioners on April 2012. According to Moody’s report, the borough has several alternatives to meet LumberYard debt obligation. It can choose between lower risk but more costly option or more risk but cheaper option.

Collingswood should list the advantages and disadvantages of the different options and choose the best option to achieve its goal to pay back the $4.5 million financial obligation and to improve its rating. In other words if the financial obligation is paid in full, the reserves is increased and good market access with calculated risk, will improve the rating. On the contrary, if it fails to pay the debt the rating will further go down. Other factors that will cause the further downgrading are the decreasing tax base, insufficient financial reserves and ineffective market access.

The Positive Effect of The Increase in Consumers Debt Since 2008

CreditCards.com has published the following credit card statistics: About 51% of the population of U.S. owns at least two credit cards; the credit bureau has a record of 13 credit obligations on the average per consumer and with the oldest one recorded for 14 years. These statistics simply prove that the payments on consumers’ credit debt greatly affect their monthly spending.

In a sense the economic recession from 2008 up to the fourth quarter of 2011 has taught lessons to consumers to reduce their personal debts through wise spending during this period.

According to the Wall Street Journal, the Federal Reserve said that there was an increase by 0.25 % in household debt which includes credit cards, mortgages, vehicle loans and student loans in quarter four of 2011. This increase was the first one recorded since quarter two of 2008 prior to the collapse of Lehman Brothers which resulted to financial problems and recession. Economist attributes this small increase to the reduction in debt and consumers’ effort to save.

Another positive result is the increase by $1.2 trillion in the net worth of U.S. households. From October to December the total net worth is $ 58.5 trillion, the first increase that took place for two quarters.  The rise was the result of the 12% improvement in the Dow Jones Industrial Average. The disposable income of Americans improved allowing them to pay their debts. In terms of disposable income, at the close of 2010, debt fell from 118 % to 113 %. Though this is small, what is important is the positive shift.

The consumers’ confidence is improving because of all the positive results that are happening. But in order to sustain the improvement, they should continue to be wise in their spending to further cut debts.  Fed’s graph shows that since 2010, there has been a sharp decrease in the GDP percentage for financial businesses and households. It was flat for non-financial businesses and increased at the Federal government level.

Your Kids May Emulate Your Poor Financial Habits

Some people think that their financial habits do not affect anyone else except them. But, the truth is, it really does impact other people especially their kids. If you are a parent or if you have a family, you should know that you may unconsciously send some negative messages to your children when it comes to financial handling particularly with debt and the right use of credit cards. In order to avoid this, here are two habits that you need to be aware of so that you can prevent your children from following them:

Maximizing Your Credit Card Limit

If you ever experienced a time when you went shopping and got declined as soon as you paid using your credit card you know that the experience was quite embarrassing. It is also a bad example to your kids who witnessed that moment because it sends the message that you have been overspending that’s why you have maxed out your credit card.

To prevent this, limit your credit card use. Tell your children that you need to stop using your card so that you can lower your balances, use cash for the most part and manage your finances better. Your kid may not be able to fully understand what you are saying but it will send the right message that you are practicing restraint in your credit card use. Furthermore, you will be a good model of delayed gratification to your kids so that they will also develop the same trait as well.

Disregarding Your Bills

How do you react to bills when you receive them in the mail? Do you refuse to open them? Do you open them immediately and give them your utmost attention? Or do you react negatively when you receive them?

As much as you want to get rid of your bills, be careful with your reaction if your children are around. Take note that they can easily follow your habit of ignoring your bills. If you keep on complaining, they will get the message that paying bills is not important even if it is. It may also send them the message that you are not valuing your credit rating because you are not attending to your bills on time.

In order to teach your child the right financial habit, show them how you take care of your bills and how hard you try to pay them on time. With this, also remind them of the importance of handling their bills properly.