It's beginning to look like people who borrow money on their credit cards are in a strong negotiating position with the credit card issuers. I find this really surprising; however, people have borrowed so much -- $2.4 trillion in installment debt -- that they have the credit card companies in a strong position when it comes to repaying -- or not.
And those credit card companies expect to get stiffed by 44% more over the next five years than they did in the past five. For example, between 2003 and 2008, credit card companies wrote off $275 billion in credit card receivables but in the next five years, they expect not to collect $395 billion.
And just as we see with the government forking over $8 trillion of taxpayer money to financial institutions, the ones that took on too much risk are the ones getting the special deal. This means that if you are delinquent for 90 days or longer; your income is in the right range; you have a broad network of banking relationships; and your credit record suggests missing a payment is an exception rather than the rule then you can get a deal.
What kind of deal will the credit card issuers give you? Credit card issuers are offering to forgive 20% to 70% of credit card debt. Such forgiveness is not free; however. If you take a deal, your credit score could be lowered for up to seven years making it far more difficult and expensive to obtain new loans. If he or she takes this debt forgiveness deal, the average consumer's score will fall 70 to 130 points, on a scale where the strongest borrowers register 700.
So it looks like if you're in trouble with your credit card company, it's time to hit them up for a break in what you owe. You won't be alone if you do.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
Reader Comments (Page 1 of 1)
1-03-2009 @ 5:54PM
Barbara said...
Banks are currently holding meetings to decide how to evaluate bad credit from this period, basically 2007 - 2010 or however long this recession lasts. They are re-calibrating computer business models to overlook bad credit because the upcoming hit will be widespread. If you are struggling, now is the time to make a deal.
1-03-2009 @ 8:24PM
TX CHL Instructor said...
Kinda makes me feel like a chump for keeping a zero CC balance.
1-03-2009 @ 11:36PM
Bobby said...
The worst part about all that's going on now is that people are becoming even more relaxed with their financial responsibilities. The gov't & banking industry are sending out really strange signals to the private sector by cutting these so called deals. I'm a landlord & I actually have tenants asking for "deals" on their contractual leases. I know something is better than nothing but I'm the last one to get a break on property taxes, insurance & commercial financing....
1-03-2009 @ 11:31PM
42 said...
I don't get it... banks are still throwing credit card pitches at me like it was 2005. Sure, they all go into the shredder, but it's still odd, and they can see that I never carry a balance in a soft pull so it's not like they're going to make much off me anyway.
Yeah TX, same feeling here. Maybe I should go do the mother of all cash advances and go live in Belize or something...
1-04-2009 @ 3:13AM
Robert said...
The real problem with the USA is just like every (lame duck story) is believed and everyone that has a half of a brain is following along.If you can see the writing on the wall the bank get the money and then the autos get the money who else is going to get it. Well lets see news agencies and then the big retail stores and then it go's south from there every business that has more then 100 people will jump on the same broken record and ask for a hand out so America lets just see what happens next we are the same as we have been since 1999 just now everyone is in a panic and they should not be.
What we should do is let the bastards go out of business and then we can get some real competing for your money to take there place.
But what do I know I am just a dumb white male that has to pay for the mistakes of other dumb people.
Needs to be stopped before every hand is cut out stand up and look around people it is one big joke.
When the financial industry started begging did you think it would of came about but Waite the Auto industry said they wanted to dip there hands in every corporate officer is watching and dreaming about how they are going to spend your money. WAKE UP
1-04-2009 @ 2:11PM
Fred said...
i must be a chump too,,silly me,meeting my responsibilties..how absurd... this whole deal ticks me off,,bailouts for everyone,,,no need to pay off what you OWE.Yeah.its the banks fault for doing us the FAVOR of lending us money that we dont have.Sure there we some shady lenders out there,,but if you had half a brain,you wouldnt deal with em.But what the heck,no one cares,get what ya can get,and dont worry about responsibilities.Its a sad state of affairs,but how it is these days.I for one,am totally baffled by everyones attitude that we can all just take,take take,without conseqenses for out unethical and irresponsible decisions,,,and THAT we hurt everyone,and be our downfall.PAY WHAT YA OWE and stop blaming everything else for stupid financial decisions.Thanks for letting me vent!!!Peace,out
1-04-2009 @ 3:30PM
Iridium said...
I have over $100k in available credit. I have about $5000 in debt locked in at 2.9%. As long as I make the payment every month I keep the 2.9% rate. My credit score is 760.
I have been responsible and I have never missed a payment on anything. I am really pissed off because everyone esle gets a bailout and I have to keep paying. There is no point in being responsible.
I should go on a huge binge and take out $100k in cash, run off to Europe and disappear. Hell even if I start falling behind and take the deal my creidt score might only drop to 650. I'd still be better off than most people.
If I take every new credit offer I get next month I may be able to get another $100k. Wow I could skip town with a quarter of a million dollars. Screw America it would serve the banks right for me to do that.
1-05-2009 @ 11:38AM
beachpaul said...
Crime pays in America. Always has, always will, but only, if everyone doesn't do it. For those who do, it is about timing and accessing risk. Now is the time, and the risk is minimal, for some petty thievery. Time to play, Let's Make A Deal. I can't even get upset anymore. At least these scofflaws act. The rest of us seem only to react.