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by Herb Weisbaum

Credit card delinquencies on the rise. Despite a strong economy and low unemployment, Americans are falling behind in paying off their credit card debt.

The delinquency rate on all U.S. credit card loans is 2.47 percent — up from 2.42 percent at the beginning of 2017 and 2.12 percent in the second quarter of 2015, according to the Federal Reserve Bank of St. Louis.

That means more than $23 billion in credit card debt is currently delinquent — 30 or more days overdue — according to a new report from the personal finance website NerdWallet.

While lack of money is the most common reason for missing a payment, forgetting to pay the bill is often the case. For its 2018 Consumer Credit Card Report, NerdWallet surveyed 2,019 U.S. adults and found that:

• 35 percent simply forgot to make the payment.
• 33 percent needed the money to pay for essentials.
• 32 percent needed the money for an unexpected expense.

Kim Palmer, NerdWallet’s credit card expert, finds it “troubling” that so many people — 65 percent of those surveyed — did not pay their bill on time because they didn’t have the money. According to NerdWallet’s most-recent Household Credit Card Debt Study, income growth isn’t keeping up with some of people’s biggest expenses. 

Reasons for credit card delinquencies

“People's budgets are really stretched because the cost of certain essentials, like healthcare, food and housing, continue to go up and really put pressure on people's budgets,” Palmer said. “And so, people are turning to credit cards as a way to bridge the gap when they can't afford their monthly bills and then they’re unable to make the payments at the end of the month.”

Nerdwallet’s report found that 25 percent of those who’ve been delinquent on a credit card payment said it was because they prioritized paying off other debt.

People's budgets are really stretched because the cost of certain essentials, like healthcare, food and housing, continue to go up and really put pressure on people's budgets.
Research by the Federal Reserve in 2017 found that when there’s not enough money to cover all monthly bills, credit card bills are more likely than other debt payments — rent or mortgage, car payment, or student loan — to go unpaid or partially unpaid.

The high cost of paying lateMore than one in five cardholders in the survey (21 percent) said they made a delinquent credit card payment sometime in their life. NerdWallet did the math: Using a late payment fee of $27, that’s more than $1.4 billion in penalty payments on a nationwide basis. And that’s on top of the interest charged for carrying a balance.

Adding insult to injury, falling more than 60 days behind can trigger what’s called the “penalty APR” which can be as high as 29.99 percent with some cards. That penalty APR, which makes it more expensive to carry that balance, can last for up to six months before the credit card company reviews your account to see if the rate should be lowered.

Let’s say you carry a balance of $3,000 on a card with a 15 percent interest rate and it takes you 18 months to pay off that balance. The Credit Card Payoff Calculator at Bankrate.com shows total interest will be $368. With a default rate of 29.99 percent, that jumps to $761, more than double the carrying cost.

Missing a payment can also decimate your credit score, because card issuers report delinquent accounts to the credit bureaus.

“The longer your account goes unpaid, the more damage you can do to your credit score and the more effort it will take to bring the account current,” said Bruce McClary, vice president for communications at the National Foundation for Credit Counseling (NFCC). “Once reported, a late payment could cause your credit score to drop more than 100 points in some situations.”

A poor credit score will make the cost of borrowing money more expensive and could result in being rejected for a mortgage or car loan. In some case, it could make it difficult or impossible to rent an apartment.

What you can doAll of these financial repercussions can be avoided with a more proactive approach, including:

• Use automatic bill pay
• Set up email and text reminders of upcoming due dates
• At least make the minimum payment to keep the account from going delinquent
• If your statement comes at the wrong time of month for you, contact the credit card company to see if the statement date can be changed.

When a late payment is unavoidable due to financial hardship, contact the credit card company before the due date to see if they can help you manage the situation. This would also be the time to get some expert guidance from a nonprofit credit counselor. You can find one near you on the NFCC website.
“Silence will only lead to setbacks,” McClary told NBC News BETTER. “Keeping your credit card balances under control and spending within your budget will go a long way toward protecting your credit health and your bottom line.”

Copyright 2018 NBC Universal.  All rights reserved.

Credit Counseling vs. Bankruptcy in Tacoma
We are frequently asked about credit counseling and debt consolidation services in Tacoma, Washington. Everyone considering filing bankruptcy in Tacoma wants to know if Chapter 7 bankruptcy or credit counseling has more of an impact on your credit and what are the pros and cons of each.
Chapter 7 bankruptcy in Tacoma.
This is designed for people unable to pay their debts. Chapter 7 eliminates most existing unsecured debts.
Pros:

• You wipe out all your unsecured debts in Tacoma. These include credit cards, personal loans, and medical bills.
• Generally, you may be able to keep your home and cars
• You get a fresh start to credit usually six to eight months after you file
• You can usually qualify for home loans in Tacoma two to three years after filing
• It will relieve a lot of financial pressure

Cons:

• The bankruptcy stays on your credit report for the next 10 years
• You may have a hard time getting credit or pay higher interest rates for a while
• It could make it more difficult to get certain jobs in Tacoma

Credit Counseling in Tacoma
Credit counseling is an alternative to bankruptcy. With credit counseling, you make a monthly payment to one company, which in turn pays your creditors.
Pros:

• You may be able to avoid bankruptcy in Tacoma.
• Your bills are consolidated into one payment.

Cons:

• Credit counseling doesn’t work for more than 50% of the people who try it. Most people cannot follow the strict payment plans and budget constraints make it too difficult
• Creditors will still consider you a bad credit risk. Credit counseling will be reported on each account in the repayment plan. Potential creditors see this and will not lend you money
• Credit counseling in Tacoma will take longer for you to re-establish credit because a typical credit counseling re-payment plan in Tacoma will last 3 to 6 years thus, delaying your ability to re-establish credit until your plan has been paid off
• Like bankruptcy in Tacoma, credit counseling may prevent you from getting some jobs
• You might not be able to consolidate all creditors. Some creditors in Tacoma are unwilling to work with credit counseling agencies. In that case, you would pay those creditors the full amount you own them directly. If you cannot do this, you may end up filing bankruptcy anyway
• Your credit score may be affected the entire time you are in credit counseling
• There is a great deal of fraud in credit counseling. Many credit counseling agencies are not properly licensed and often do not follow the rules. Many so-called agencies have taken money from people without paying a dime to creditors and then disappear.

The notion of credit counseling and what it can do for people may sound good, but when you look at how the benefits of credit counseling in Tacoma stacks up against Chapter 7 bankruptcy in Tacoma, Chapter 7 bankruptcy may be the best choice for people with financial problems in Tacoma. Chapter 7 bankruptcy simply gets you back on the road to financial recovery faster. It also wipes out debt that credit counseling cannot, but when you consider the failure rate of credit counseling, Chapter 7 bankruptcy is the best choice for most people facing financial problems in Tacoma.
Contact Us
If you have gone the credit counseling route and it didn’t work for you or if you have looked at your options and think bankruptcy in Tacoma may be the way to go, give our Tacoma bankruptcy lawyers a call.
The post Credit Counseling In Tacoma appeared first on Portland Bankruptcy Attorney | Northwest Debt Relief.

By Ben Miller

Millions of students will arrive on college campuses soon, and they will share a similar burden: college debt. The typical student borrower will take out $6,600 in a single year, averaging $22,000 in debt by graduation, according to the National Center for Education Statistics. 

There are two ways to measure whether borrowers can repay those loans: There’s what the federal government looks at to judge colleges, and then there’s the real story. The latter is coming to light, and it’s not pretty. 

Consider the official statistics: Of borrowers who started repaying in 2012, just over 10 percent had defaulted three years later. That’s not too bad — but it’s not the whole story. Federal data never before released shows that the default rate continued climbing to 16 percent over the next two years, after official tracking ended, meaning more than 841,000 borrowers were in default. Nearly as many were severely delinquent or not repaying their loans (for reasons besides going back to school or being in the military). The share of students facing serious struggles rose to 30 percent over all. 

Collectively, these borrowers owed over $23 billion, including more than $9 billion in default.
Nationally, those are crisis-level results, and they reveal how colleges are benefiting from billions in financial aid while students are left with debt they cannot repay. The Department of Education recently provided this new data on over 5,000 schools across the country in response to my Freedom of Information Act request.

The new data makes clear that the federal government overlooks early warning signs by focusing solely on default rates over the first three years of repayment. That’s the time period Congress requires the Department of Education to use when calculating default rates.
At that time, about one-quarter of the cohort — or nearly 1.3 million borrowers — were not in default, but were either severely delinquent or not paying their loans. Two years later, many of these borrowers were either still not paying or had defaulted. Nearly 280,000 borrowers defaulted between years three and five.
Federal laws attempting to keep schools accountable are not doing enough to stop loan problems. The law requires that all colleges participating in the student loan program keep their share of borrowers who default below 30 percent for three consecutive years or 40 percent in any single year. We can consider anything above 30 percent to be a “high” default rate. That’s a low bar.
Among the group who started repaying in 2012, just 93 of their colleges had high default rates after three years and 15 were at immediate risk of losing access to aid. Two years later, after the Department of Education stopped tracking results, 636 schools had high default rates.
 For-profit institutions have particularly awful results. Five years into repayment, 44 percent of borrowers at these schools faced some type of loan distress, including 25 percent who defaulted. Most students who defaulted between three and five years in repayment attended a for-profit college. 

The secret to avoiding accountability? Colleges are aggressively pushing borrowers to use repayment options known as deferments or forbearances that allow borrowers to stop their payments without going into delinquency or defaulting. Nearly 20 percent of borrowers at schools that had high default rates at year five but not at year three used one of these payment-pausing options.  

The federal government cannot keep turning a blind eye while almost one-third of student loan borrowers struggle. Fortunately, efforts to rewrite federal higher-education laws present an opportunity to address these shortcomings. This should include losing federal aid if borrowers are not repaying their loans — even if they do not default. Loan performance should also be tracked for at least five years instead of three. 

The federal government, states and institutions also need to make significant investments in college affordability to reduce the number of students who need a loan in the first place. Too many borrowers and defaulters are low-income students, the very people who would receive only grant aid under a rational system for college financing. Forcing these students to borrow has turned one of America’s best investments in socioeconomic mobility — college — into a debt trap for far too many.

Copyright 2018 The New York Times Company.  All rights reserved.

PARKER, Colo. (CBS4) – The Federal Reserve estimates that student loan debt is a $1.5 trillion problem in America. This debt is sinking many families into bankruptcy, but a new interpretation of the law may be offering some relief.

Paige McDaniel decided to go back to school to get a bachelors and masters degrees in business administration. She chose the online program at Lakeland University.

“I didn’t want a publicly traded school. I wanted a school that was an actual university, and had a focus on academics,” McDaniel told CBS4.

She took out federal student loans to cover the cost of her bachelors and masters degrees in business administration.

“You’re always raised, the more education you have the better off you’re going to be,” she explained.

In addition to the federal student loans, McDaniel signed up for about $120,000 in private student loans.

“Started getting direct mail from Sallie Mae, who had my federal loans at the time, offering additional loans to help with additional expenses, so I did take out some of those loans as well,” McDaniel said.

She didn’t realize the loans were different. Federal student loans have a fixed interest rate, and manageable repayment options. Private education loans have a variable interest rate, and no repayment help.

“That one mistake is…is the biggest regret of my life, and has hurt my family, to the point where it would have been better for me not to get the degrees,” McDaniel said.

She soon found herself in over her head. The loan servicing company was billing her $1500-a-month just on the private loans. She ended up declaring Chapter 13 bankruptcy, but even that didn’t help. She paid on the loans through the proceeding, but still came out owing more than she borrowed.

“We knew the federal loans could not be dismissed, but the private loans were supposed to be,” she explained.

Traditionally, in bankruptcy court, any loan with the word “student” associated with it has not been dismissed. New York lawyer, Austin Smith, has a different take on the law.

“These loans that we’re litigating, these are just like credit card debt. It’s the exact same thing as if a bank gave a student as credit card,” Smith explained.

He argues that private loans that are not used for education expenses, should be treated like any other personal debt, and be dismissed in bankruptcy.

“We have not lost on this issue yet,” Smith told CBS4.

Navient Solutions holds McDaniel’s loans, and is one of the largest student loan servicers in the country. It’s facing several lawsuits about it’s lending practices including those filed by Attorneys General in Illinois, Washington, Pennsylvania, and California. It’s called the allegations in those cases unfounded, and in a statement to CBS4 about McDaniel’s proceeding, it said:

“It went from this is the solution, not one we wanted, but this is the solution, to we’re in worse shape than we were before,” McDaniel said.

Her payments are on hold pending a court decision, but the balance keeps ticking up. It’s at more than $260-thousand now.

“I can’t breathe when I look at it. It’s a panic. There’s no way out of this,” she said.

Colorado Congressman Jared Polis has introduced a bill designed to keep student from getting into this situation. The Know Before You Owe bill would require Universities to counsel students on the difference between federal and private loans before they sign up for them.

©2018 CBS Broadcasting Inc. All Rights Reserved.