"My husband and I are both 57 years old and we both had credit cards since I was 21 -- in 36 years we had never missed a payment ," says Linda Field (not her real name) of Tucson, Arizona.
As Linda explains, credit card debt can take you nowhere but down and transferring funds from one credit card company to pay off another is a slippery slope that can only spell financial disaster.
"We moved to Arizona from back east 10 years ago and started accumulating debt: our son needed dental work and the moving bills alone were about $10,000. Because we had such a good credit score -- our SICO was 740 which is about as high as you can get -- our credit was extended. I had two City Corp VISA cards which I had for many years and several more including a Chase Mastercard and Wells Fargo VISA. At the time I applied, they all offered low interest rates as an introductory offer.
One thing led to another and we found ourselves owing $40,000 to credit card companies. These banks said that if we transferred our balance to them, such as the City Corp VISA card to Chase Mastercard, the interest rates would be at 1.9% for the entire time it would take to pay off the entire debt-- as long as we made payments. Every company kept sending fliers and brochures offering us to transfer our balance to them for this lower rate. So I had this big bill and we figured we should transfer to pay it.
Everything was fine on the first balance transfer, which we did about three years ago. I had American Express at 5.9% but Wells Fargo said we could transfer that balance to them at 2.9%. (It is not uncommon for people to shop around for better rates.) And when they offer you a lower rate they offer an extended credit. For instance, City Corp offered a maximum credit line of $22,000. I then took two other credit card balances and transferred them over to City Corp to get a lower interest rate.
But last October my husband got very sick and had to go into the hospital. The company he worked for had terrible medical insurance and we had to pay a $7,000 hospital bill. I had to put some on the credit card. In February his job was terminated and he was out of work for six weeks. I am on disability but only get a small monthly check. Money was tight, to say the least.
Our City Corp payment was due on the 15th and I always pay online. We were strapped for money and I paid it on the 16th - one day late. The rate went up to 34%! I had this card since 1990 and they did this to me. When I paid, I was also charged a late fee. My original rate of 1.9% was now 34% and the minimum payment of $1,100 was mostly interest. The other credit cards went up to the same rate. How did they know I was one day late? They said I defaulted and if I read the fine print, it states that if you make a late payment, you lose the 1.9%.
I called Wells Fargo and they said the interest rates went up to 35% because I am a risk. When I figured out what every card would cost me, it would be $6,000 per month in interest. The others also said I defaulted and I was a credit risk.
We sat down and looked hard at this - what alternatives, what options do we have? I checked out a debt consolidation company and that was ridiculous. They told us not to pay the creditors for three months but just pay them. By now I am up to $60,000 in credit card debt. The debt consolidaters said they would cut my payments in half by negotiating but I would have to pay them a fee of 15% of what I originally owe.
They are nothing but loan sharks. I would have been better off borrowing from the Mafia.
And whatever the debt consolidators save you from the credit card companies, you have to declare it and pay taxes. By this time our credit rating was so bad I had no choice but to seek legal help.
Bankruptcy lawyer Craig Morris told me that when a credit card company raises your interest rate past 15% you are in the dead zone and can never pay it off. When I told him I was paying over 30% interest, he said, 'That is ridiculous and now you aren't going to pay them anything.'
It was a hard decision. We were able to fit into Chapter 7 - which is good because we didn't have to make any payments. And we were allowed to keep our house and two cars. Otherwise they would have been liquidated. Mr. Morris told us not to pay anything and not to answer any phone calls from the credit card companies. We filed a petition with the court after 90 days.
At the end of three months we received letters from every credit card company; they said 'We realize you must have a problem and we will be willing to reduce your debt by offering you a lower rate. Please call us.' But by this time, the wheels were already in motion. After you don't pay for three months, your credit is in the dumpster.
The Chase Bank then offered to take $2,000 off our bill (we still owed $8,000 from our son's dental bill) and reduce the interest rate to 9%. Too late. And they weren't the only ones - all the companies offered the same reduced rates. Mr. Morris said they all do this and could have done it three months previously.
So finally we went to bankruptcy court in June and the petition went through; we would be discharged in October. (The credit card companies have this time to dispute our petition.) Chase made a stink about it, and said that we indiscriminately used the credit card, but they would cut what we owed in half and sent us blank checks. My lawyer said to ignore it ."
Offering to cut debt in half is also another racket the credit card companies use to get you further into debt by offering checks, but that's another story.
"Now at the age of 57, after never missing a payment in my life, I have a bad credit rating. I can't take out a student loan for my son. We get offers like crazy to get more credit cards. Two weeks after we filed, I got letters from car dealerships: 'Don't wait until your file is discharged, buy a car today.' What a racket.
My lawyer told us that when we are discharged, we will get so many offers for more credit cards because they know you cannot file bankruptcy again. If you default on payments a second time they will take your house.
Yeah, we ran up a lot of bills and we were stupid but I could have gone to a lone shark and got better rates. I don't see how a company that I paid into for 10 years can do this. Even if it is in fine print, can't they give you a break? They think people aren't going to take this big horrible step which is bankruptcy, but now that it is over we can breathe again. Although we don't have a credit rating, we don't need to buy another house and we are still getting offers to buy a car.
Apparently the average American family has $8,000 in credit card debt. Personally I think it is more than that. They make it so easy to get more."
Craig Morris, bankruptcy lawyer in Tucson Arizona:
"On January 1st 2005, a regulation went into effect that all credit card companies had to increase their minimum payments with the goal in mind that consumers would pay off their balance faster. Instead it increased defaults and more people claimed bankruptcy.
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One of the companies says in fine print that 'Payment has to be received by 1pm' and I see this problem happening a lot with clients. They bring in their statements and the credit card company has told them that there is a change in their policy- 'If you don't want to accept, let us know in writing in the next few days or you will be bound to pay.'
You try to juggle and the ball starts hitting the ground. It is a big problem owing more than one card. If you have any sort of dislocation of income, rates go up. Once one company increases rates, they all jump on the wagon..."