Nov
4
In case you haven’t heard, a consumer group and financial services group requested that credit card issuers be allowed to forgive some of the debt of credit card holders. What? Are you kidding me? I could maybe get behind the new foreclosure plan that doesn’t actually forgive principal balances, because some people were genuinely defrauded by mortgage brokers, but no one was forced to use a credit card!
Why Credit Card Debt Forgiveness is Bad
Simply forgiving up to 40% of credit card debt is bad for three reasons:
1. This debt was accrued by choice. The typical debt is not the result of a medical emergency or falling home values. It’s a result of people buying stuff they can’t afford and then deciding not to pay off the bill at the end of the month. People who have their credit card debt forgiven without going through some kind of difficult process, like bankruptcy, won’t learn to budget. They’ll just wind up in this situation all over again.
2. We already have a system to forgive credit card debt. They call it bankruptcy. If you qualify, judges can reduce or eliminate credit card debt. If you don’t, then you get put into a payment plan. This plan applies to the types of situations where people would file bankruptcy, but without the pain or the process.
3. Banks don’t need the government’s permission to write down losses. They can do that it already, but they want the government to change accounting rules so that writing down credit card losses is advantageous to the banks. So, now the banks won’t learn a lesson either. No one made them issue those credit cards. They knew the risks, and they should accept the consequences.
Yes, I Do Think People and Banks Need to Accept the Consequences
When I was younger, I backed up without looking and caused $500 in damage to the car behind me. My parents made me pay for that out of my own pocket. From that I learned to be more careful while driving. If they’d just let me off the hook, I wouldn’t have driven as carefully in the future.
The same goes for the banks and consumers: the various government bailout programs are giving the impression that American consumers and businesses can be as irresponsible as they want because the government will fix it if it gets bad enough. Banks don’t have to manage risk because they can earn mega-profits and then Uncle Sam will cover any of the losses. The American people don’t have to get spending in control because the government will bail them out if it gets really bad.
I heard a great quote this morning from Newt Gingrich, a man I do not normally agree with: “You can’t have capitalism on the way up and socialism on the way down.” Amen to that. If I choose not to pay my electric bill, the electric company doesn’t forgive the debt. They shut off my electricity. But now various groups are looking to the government to keep the electricity for months after the bills have stopped being paid. That’s not fair to those of us who are responsible with our money, and it sends the wrong message to banks and people who choose not to be.
What do you think of the credit card debt forgiveness plan? What else is making you stabby in this week’s news?
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26 Responses to “That Makes Me Stabby: Credit Card Debt Forgiveness”
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So should I stop paying down my debts? and wait for my creditors to lower my balances by 40%?
Well that makes me “stabby” too! Reductions in interest rates and fees I could get behind, but principal? The only ones being penalzed by all this bailing out are those of us who are paying our bills. Bad precedents are being set.
[…] Sound Money Matters: Aryn isn’t keen about forgiving credit card debt. In fact, if Congress changes the accounting rules surrounding credit card debt, she’s going to be pretty crabby. Er…stabby. […]
[…] Sound Money Matters - That Makes Me Stabby - Credit Card Debt Forgiveness […]
[…] Sound Money Matters: Aryn isn’t keen about forgiving credit card debt. In fact, if Congress changes the accounting rules surrounding credit card debt, she’s going to be pretty crabby. Er…stabby. […]
[…] Sound Money Matters with That Make Me Stabby: Credit Card Debt Forgiveness […]
Great article. I couldn’t agree more!
But if they would just reduce all the late charges, Bogus interest rates…Look at my payment history. They owe me money can not get through to them. I have been harassed at work long enough.No one fixed the mistakes.
I was run off jobs and kept from getting another. we needed Consumer protections.
Maybe there is a lot of business mistakes you do not know about .You are lucky you do not know what I know. I want my money back, you can not give me back 12 years of my life trying to stay afloat from outsourcing, downsizing, Sabotage, computer crashes, mail lost. Relationships will never be mended.
PTSD the feeling of wanting to barf the embarrassment of getting run off jobs FOR SOMETHING SOMEBODY ELSE DID I hope all you troublemakers burn a slow death in hell.
The banks raised rates on people any time they felt like it. It is worse than a payday loan.
If you are not stuck in the middle Thank GOD .
[…] Sound Money Matters: That Makes Me Stabby: Credit Card Debt Forgiveness […]
I have agreed with your general philosophy for a long time, that people just need to live up to the responsibility of paying their debt. Then I became seriously indebted myself. No, not everyone just “chooses” to use a credit card…or at least not as casually as you infer. Some people decide they must put their everyday expenditures on their credit card because there are no funds to pay these expenses otherwise. That decision, by many of us, is made under the premise that things will eventually get better and then we’ll have the funds available to play “catch up”. In the meantime, you cut what expenses you can. When things don’t get better, you find that your debt has grown to such a proportion that you can’t even see the light of day. Then when your promotional interest rates have expired, the situation even worsens. You can stop tapping your credit, which is the only way you keep everyone else paid in full and on time…or refuse to go into debt any further and lose everything in short order. Some people DO continue going into debt with the intention of paying things back down when “times” get “better”. This is especially the case when you are self-employed. Have you ever been self-employed? We are self-employed. We have always made a good living and we have always had A1+ credit. We employ others who make a good living, and they pay their bills. When the economy turns bad, we all hurt. MANY of us do not go into debt just figuring that we can walk away from it later if we have to. We don’t PLAN it that way. Not ALL of us are irresponsible in that way. I think your blanket statements are just that…irresponsible. You don’t have all the facts surrounding each case, ma’am. You should get out there and actually talk to people and find out the details of their lives and what landed them in such a financial mess. I will guarantee you that not many of them really relish the thought of telling their creditors that they are not going to pay them.
We work hard and we pay our bills. We have never not paid anyone. Not ever! But if things don’t get better soon, we may have to look into debt forgiveness or bankruptcy. The only other option is to lose everything we have, with nothing left to raise our children. Do you think we would actually look forward to seeing years and years of perfect credit ruined???
Actually, Samantha, I have been in credit card debt twice, and both times I paid my way out of it through hard work and improved circumstances. Both times the debt was for groceries and gas, but it was still a choice I made to use credit rather than scrimp on other things.
I have also been self-employed and used credit cards to make ends meet, but again, that was my choice. I could have gotten a part-time job to cover the bill, but I didn’t.
I realize that most people get into debt with the intention of eventually paying it back and then run into trouble, but we already have a system to deal with that. What we don’t need is a change in the tax code so that banks will receive a tax benefit for writing down credit card debt. I stand by that.
Pat,
I have no problem with card issuers removing late charges and reducing interest rates. Credit card issuers have been bleeding consumers for years and I don’t support that. My issue is when credit card issuers ask the government to change the tax code so that they get a tax break for reducing the principal balance on credit cards. Credit card issuers can do that if they want to, but I don’t think the government should help them.
[…] Are you kidding me?” Aryn writes at Sound Money Matters. She can understand a bailout plan for struggling homeowners because some […]
There are lots of people, like me, who are in Samantha’s position. People who had great credit and ran into unexpected trouble, thought it was temporary, and fell afoul of predatory lending practices. If those practices caused the problem, what’s the matter with giving the victims a break?
Again, I have no problem with credit card companies reversing excessive interest and punitive fees. In fact, I urge Congress to do something about them.
What I don’t agree with is a unilateral 40% cut backed by a change in tax rules to accommodate it.
Last week, the government announced that it would not adjust the tax code to allow the credit card companies to benefit from writing down debt. They’re still free to write it down if they want to, but not with government help.
[…] Here are the Editor’s Picks for the week: Credit Card Debt Forgiveness […]
Aryn: What you are saying that is OK for the Feds to help the rotten bankers but not the credit card customers that the majority for reason beyond their control, had to use their credit cards now finding they do not have a job to pay for them. The banks will not lose a penny if they forgive 40% of the debt. Credit card companies are not willing to write-down anything.
No, Carlos, I didn’t say that. I opposed the bank bailout in an earlier rant.
Also, the majority of people in this country with credit card debt are NOT in it for reasons beyond their control. They’re in it because they overspend on impulse purchases and figure they’ll pay for it later.
If a credit card company chooses to write down a debt, then that’s their right, but I don’t think the govt. should change the tax code to make it easy for them. That costs the taxpayers money, and I’m not OK with that.
I just got a notice from Citibank that the APR on my card would be going up to 24.99% for purchases and for balances. It’s at 11.9% right now, so it would be more than doubled. I have not been late with any payments, I am in good standing, I’m not behind, I don’t shaft the bank, I pay what they ask for and more when possible. I’m struggling to make ends meet like everyone else, and have no health insurance to boot. Now what on earth would make Citibank (who is getting a $300 billion dollar bailout for THEIR irresponsible behavior) increase my interest rate to such backbreaking proportions? They said, “increase in cost of doing business with our customers.” This is what the front line woman said and the account manager I asked for as well. They have been well versed on what to say, but what they say makes no sense. I asked her to bring it down and she gave me a 16.99. Whee. We may have used the cards and I am not disputing that, and we are not trying to run away from the debt, but the INTEREST RATES and FEES make it impossible to pay the principal. This is the truth of it. This is where credit card companies should not be trying to bleed us dry. ESPECIALLY people like me who are not defaulted and never missed a payment. The good people who are paying on time according to the agreement simply watch the agreement being changed willy nilly in favor of whatever the bank wants on any given day.
It is unfair to even suggest that people who are in debt are in debt because they’re so irresponsible. We go in under one APR and the bank changes it. What then? If the bank changes the terms, why is that the consumer’s fault when they suddenly find themselves unable to pay? If the bank was stuck with issuing you an APR agreement for the life of your balance, that would make sense. But having the interest rate go up 100% is unconscionable and should never apply to debt already accrued.
Momo,
I totally agree about the fees and interest rates increases. We just received a notice for our Citibank card that our rate is going up to a minimum of 19.99%! Fortunately, we don’t carry a balance and rarely use the card. But it’s ridiculous. It’s like they’re trying to force people into default.
Congress needs to stop listening to the CC industry lobbyists and make some interest and fee rules with real teeth.
I do agree with certain aspects of what you said. But these credit card companies have had carte blanch for the last 30 years. They have been marketing and predatory lending to people they knew couldn’t afford to make the payments while increasing their credit lines. Not to mention that wages are still what they were in the 1970’s yet inflation continues to grow. Not to mention that those of you who pay their bill in full each month is affectionately referred to as a deadbeat by your credit card company. So to be honest, I don’t really care about the credit company and I wish they would have to forgive 40% of debt, most of it is interest and fees. I’m sure they would find a way to get by.
There are situations where debt forgivness is necessary and appropriate as part of an overall plan to stabilize the economy. The current economic conditions have forced a reconsideration of the concepts of contractual obligations, property rights, and the use of market forces to allocate resources. The principles we used in the past may not work going forward. To dogmatically apply the rules of the past carries the same danger of literally interpreting scripture instead of considering the context in which is was formulated versus the context of its practical application. To this end, experimentation with new models of markets, contracts, and property rights should be encouraged in an effort to formulate a pragmatically effective paradigm for today’s world.
I think if you are a tax payer then some of your credit card debt should be forgiven. Why? While I may have charged things to my card by my own choice, I DID NOT Choose to Bail out these same credit card companies. So now, not only do I have to pay my balances down, NOW I have to ALSO give them more of my money because they don’t know how to run their companies? NO! I pay my monthly credit card bills, it was my choice to use a credit card. But I also hold up my end and pay my monthly payments as agreed through the card companies. So that is not my fault. I WAS responsible, and I DO pay my payments. But NOW I also have to pay money through this Bailout because they don’t know what they are doing and cannot run their company properly and are the irresponsible ones. Dang right they should forgive at least a portion of the debt!
Just one problem, Steve. The banks didn’t get debt forgiveness. They received cash in exchange for preferred stock. That means that they must repay the money in the future before they pay gains to other people. Would you like the same deal? Do you want to get out of credit card debt with government money, only to have to pay the government even more of your future income than you otherwise would?
about the citibank rate going up………we got a notice too. fortunately i saw in our area paper about that and calling in to ‘opt out of it’. so i received my notice from 8.4% already paying $100 in interest a mnth to go up to 24.99%. i called to opt out and got it accomplished. i got the same response cost of lending but they get huge bailouts. well to opt out means you close your card when it expires and keep the rate you currently have until paid off. i sugges people doing this and to get their point accross! good luck
There certainly is a lack of consequences in this nation isn’t there. Our founders would have much to say if they were here today about our bad Congress.