Credit Card Debt

Transcript

This is Legal Debt Solutions with attorney Mark Jump sponsored by Jump Legal Group. Over the next half hour Mark Jump, one of central Ohio’s leading debt resolution attorneys, will present information that will help protect you, eliminate debt and change your life. If you’re ready to take control of your financial situation, this program is for you.

Welcome to Legal Debt Solutions folks. I am your host, Mark Jump, happy Sunday. I hope everyone’s having a good Sunday morning and thanks for joining us. If you found us on the dial and you’re facing financial difficulty, you found the right place. I’m an attorney that’s been practicing law for over 20 years here in central Ohio, helping individuals and families find their way out of debt.

Contact Us For Information Or Solutions

The name of our law firm is Jump Legal Group and you can reach us at jumplegal.com you can also call us at any time during the show. Our phone number is (614) 481-4480. Even though it’s Sunday morning, we do have attorneys available to talk to you. We’d love to hear from you. If you hear something during the show that applies to you and you’d like to schedule an office conference, our office conferences are free. You can also schedule a telephone conference with one of our lawyers. All you have to do is visit our website jumplegal.com or call us at (614) 481-4480.

If you’re a good American out there and you’ve been a model citizen your whole life and very, unfortunately, you find yourself now in a position that you never thought you’d be in. You have debt, too much debt. You need information, you need knowledge, you need courage, and perhaps most importantly you need solutions. Hence our name, Legal Debt Solutions. We are here to arm you with the knowledge that we have that will help you resolve your debts with dignity. So thanks for tuning in and hopefully we’ll be able to provide you with some information that’s helpful. Because our law firm does help people out of debt through bankruptcy solutions, although that’s not all that we do, we do help a number of consumers file for bankruptcy relief.

Because we do that, Congress calls us a debt relief agency because we help people file for bankruptcy relief under the code. And we do talk about bankruptcy in a number of our shows. But as I mentioned, that’s not all that we do and that’s not the only way out of debt. It depends on your particular situation. It may be that you’re facing a foreclosure, but that doesn’t necessarily mean that you have to file a bankruptcy.

It may be that your only debt is student loan debt and it may be that it’s federal student loan debt. Well, bankruptcy is not going to provide a very good solution for you if all your debt is student loan debt because it’s not dischargeable, meaning it cannot be eliminated by bankruptcy proceeding, but it’s, if it’s a federal student loan, you might very well be able to find a very workable and affordable payment program through an income-based repayment program. And when you’re done paying the term of that income-based repayment program, which by the way folks can be as little as 10 years, you will be able to wipe out what you didn’t pay in student loans. And that does not involve bankruptcy. So a couple of quick examples of ways that we can help people out of debt depending on their situation, without filing for bankruptcy. But of course, a lot of people find themselves in a situation where bankruptcy does provide the best solution. And so we do try to cover a number of bankruptcy topics during our show.

I like having our show on Sunday morning. I’ve said this before and, the reason that I feel that way is I think Sunday is a time where a lot of us reflect on our lives. We reflect on our professional lives, we reflect on our families, and we reflect on our financial situation. In fact, many of us pay our bills on Sunday, so it’s typically a quiet time, a good time to take care of personal affairs. So if you’ve tuned in, this is Legal Debt Solutions and I’m attorney Mark Jump. Welcome. If you find yourself in financial difficulty and you found us on the dial, then you have found the right place.

How To Live Debt Free

If you’re in debt out there and it’s causing you stress, you’re not alone. There’s over $1 trillion of student loan debt out there. There are almost a trillion dollars for credit card debt. And we’re going to focus a good part of our show today, most of our show today really on credit card debt. There’s millions of people that have faced foreclosure since the single-family home crisis, which really began in late 2009 and went full steam ahead in 2010. Lots of wages out there have been stuck and haven’t gone up. Real wages haven’t gone up.

So if you find yourself in this situation, you are certainly not alone, but it really does feel alone. And I understand that. And if you’re in debt, you know what I mean. Because if you’re in debt, you are in a situation where it’s unresolved. Many people talk about stressful events in life. Probably the most obvious one is losing a loved one. And certainly, that’s something horrible to go through. And if you’re out there listening and that’s something that you’re confronted with right now, my heart goes out to you and I understand that.

But the thing about that as compared to being in debt is its final meaning the, the loved one has passed away and it’s final and you can cope with that in many ways better than people can cope with debt because it’s an unresolved set of circumstances. What I mean by that is you go to bed at night and it’s with you. You get up in the morning, it’s still there. You’re driving to work, still there. You’re trying to get your work done, it’s still there. And many times not having a solution in place, not having a game plan is one of the most stressful things to go through. So hopefully if you find yourself in financial difficulty and you want to give us a call, (614)-481-4480, we can try out a plan for you, that’ll give you some peace, light, a step back to evaluate your situation and be able to march on towards a solution that’ll change your life.

And that’s really what it’s about. We’re really in the business of changing people’s lives. I always say, imagine for a second your life without that, what that would be like. And many people stop and think to themselves, “Wow! I can’t even imagine what that would be like.”. And I say, okay, well let me show you the way. So if you’re in financial difficulty, don’t hesitate to visit us online, jumplegal.com or call us at (614)-481-4480.

Credit Card History

Now let’s talk a little bit about credit cards. It’s kind of interesting, I think the history of credit cards. Really, credit cards have not been with us very long as it relates to debt in general. We’ve had debt for a long period of time, but not necessarily credit cards, and credit cards before they became credit cards went through an evolution. And I thought I would just tell you because I thought it might be a little fun to learn a little bit of the history of credit card debt. A short history if you will.

So I’ll take it back to shortly after the second world war, 1946, and there was this fella, John Biggins, who was a banker in Brooklyn, New York. And he came up with a concept because he was sitting around understandably one night and said to himself, “gosh, you know, how can I get more depositors at my bank? How could I maybe create some more fees?”, a natural thought process for a banker to go through. And at the time, and really this started to take hold in the 20s, a lot of individuals were buying a number of things, gas, things that they would get at the grocery store, and other merchant accounts. They were doing it on credit directly with the merchant. And so they would make an arrangement directly with the merchant to buy the goods or buy the services and make payments over time. And it’s really what we call installment debt.

And he came up with a concept of, “gosh, what if I could be the middle-man between people that can’t necessarily afford to pay cash for something but would benefit from purchasing the goods and services?”. And he came up with the first of what we call a closed-loop credit card system. But really it’s not a credit card. It was what we call a charge card and the name of it was Charge It. Pretty obvious name. Not very unique but essentially pretty effective.

The problem was that Biggin’s system required that you’d be a deposit or in his bank and it did increase the deposit that was in his bank, and it required that you really lived in the New York area. So it was limited in scope. Shortly thereafter, and you’ve probably heard about this, the Diners Club Card came about. The Diners Club Card came about really almost by accident because it really is born out of an incident where a fellow named Frank McNamara went to this restaurant, famous old joint in New York City across the borough from where Biggins was, in Manhattan called Major’s Cabin Grill.

He was there in 1949 and he was having a business dinner. Probably having a cocktail, maybe a glass of wine. And when he was done, he was relaxed, unwinding from what was hopefully a productive workday for him. He reached down in his pocket and he thought, “Uh oh, I don’t have my cash with me tonight. What am I going to do?”. Panic set in because there wasn’t really another option unless you had an account with the restaurant. They expected you to cash out in the literal sense of the word. McNamara wasn’t able to do that. He eventually got out of that pickle. And I’ll tell you a little bit more about the history of credit card debts when we get back and how we evolved from Frank McNamara’s unfortunate night at Major’s Cabin Grill to what we have today. Folks, you’re listening to Legal Debt Solutions, I’m attorney Mark Jump. We’re going to take a very short break. We’ll talk to you soon.

Welcome back, folks. You’re listening to Legal Debt Solutions and I’m attorney Mark Jump, welcome to the show. If you’ve just found us on the dial, we’re in the business of providing solutions for those of you out there that are in financial difficulty. If you’ve been listening to the show before the break, we were talking about the short history of credit cards before we get into some solutions that are available to you if you have a lot of credit card debt that you’re struggling with.

When we left off, I was telling the story about Frank McNamara who went out one night to have dinner at Major’s Cabin Grill, a famous old joint in Manhattan. It’s next to the Empire State building. And he realized at the end of the dinner, Oh my God, I don’t have my cash with me. Well, he eventually worked something out with the restaurant, but he went back to his room and he thought, you know, wow, I mean, how many other people out there would enjoy a different way to buy dinner and not have the concern about not having cash with them.

So really it was born out of this incident and the need for a more convenient way to pay for things like dinner. And that was what came to be known as the Diners Club Card, which a lot of you have heard of likely. And some of you may be old enough out there listening that you used a Diners Club Card. And in very short order that card in about two years ended up having about 20,000 cardholders. That was a pretty rapid growth in the industry. It was limited to individuals with really only the best credit, but it was revolutionary in a lot of words in a lot of ways.

Well, it was cardboard. Think about how bizarre that seems. It was a cardboard card, wasn’t plastic. And we always talk about credit card debt and we talk about using too much plastic or I’ll just pay with plastic.

Well, the first charge card if you will, was cardboard. And that remained the case for almost 10 years until American Express came up with the first plastic card. Both of those American Express diners club and then going back to John Biggins who is not as famous as Diners Club. In fact, he may not have gotten much more fame other than the few minutes that I gave him here this Sunday morning as it relates to having the first charge card. But his was a charge card, Diners club was a charge card and American Express was a charge card and American Express was the first plastic one, but it wasn’t a credit card, meaning that you had to pay the card every month. Whatever you charged on the card you had to pay every month. And that was why it was called a charge card.

What Was The First Credit Card?

It wasn’t really until the mid-60s that a true credit card came to be. And it was brought to the market by a name that you’re gonna recognize, Bank of America. And what they did is they came up with the brand of Bank America Card and this eventually became what we now know as Visa. The brand was eventually used by a number of different people and it was the first of what we call open-loop system, meaning that various merchants participated in various banks and there were various transfers that went on between and among all of them, allowing people to buy more goods and services.

So a very healthy thing for the economy in general because if you think about it, if everyone’s out there waiting to have enough cash to go buy the pair of shoes that they want or the pair of shoes that perhaps they need or a new suit, for you ladies out there a dress, and of course shoes and supplies may be that you need around the house, furniture, things of that nature to have cash for everything. It puts a bit of a damper on the economy to be able to have a credit card where you can make that purchase, get the benefit of the goods and services, but not necessarily have to pay it back immediately. Meaning that you can carry a balance as opposed to the charge cards like the Diner’s Club in the early day, American Express cards, those recharge cards where you had to pay it back every 30 days. Bank of America brought to market the first credit cards.

The Average Credit Card Debt In The U.S

From there really is when the credit card market began to, over the next course of years, explode if you will. Right now, there’s about $900 billion, almost a trillion dollars worth of credit card debt out there. The average household has $15,000 worth of credit card debt. The average interest rate charged by a credit card is 14.95%. And this goes up and down depending on interest rates, but that’s what it was before I came on to do the show this morning. The prime interest rate keep in mind is 3.25, so really we’re almost four times a prime interest rate is what the best borrowers can borrow money from a bank at.

That’s 3.25. So we’re at four times that rate is the average credit card interest rate. And that makes a big difference because it dictates how difficult it is to get out of credit card debt. And if you’re in credit card debt out there, you know exactly what I’m talking about. So just to run some math, if you had $30,000 of credit card debt and you wanted to pay it off over five years at that 14.95% interest, well you’d have to pay about $700 a month. And of course, you have to make sure that you don’t use your card again. So you have to be very disciplined. That’s very difficult to do. And typically that’s not what most folks end up doing because what happens is since they can carry a balance on the card is they’ll use the card, make the minimum payment, which is about half of that, maybe a little bit more, use the card again and unfortunately for some end up getting a second card and sometimes getting a third card, sometimes getting a fourth card.

Well, pretty soon you might have a situation where you have 30, 40, $50,000 of credit card debt and you’re thinking, Oh my God, what am I going to do? Well, there’s a number of things that you can do. The first of them, of course, is to try to pay it back. And if you can do what I just explained, which is where you map it out over five years and calculate what the monthly payment would be, then you ought to do that because that’s going to be the best thing on your credit. But if you absolutely can’t do that, maybe you’ve had a change in income, maybe you’ve had other things in your life that have occurred that have caused you to be faced with the inability to make that kind of payment each month. Then you have to understand what solutions might be out there for you.

3 Major Solutions to Credit Card Debt

And really there’s going to be three major solutions. One is you can seek out a credit counseling organization and see whether or not they can reorganize your credit card debt into one monthly payment at a lower interest rate, maybe 5-6%. They can provide the discipline to the process that you’re unable to provide yourself. And I’m not being critical of you out there. If you are one of those individuals that are having a difficult time finding that kind of discipline, you are certainly not alone in that regard. But a credit counseling agency can do that for you.

The second option, which we do at our law firm is what we call debt settlement and that’s where you pay less than what you owe the credit card debt in turn in the form of a lump sum payment. Now you’ll have to default, likely, on your credit card or credit cards for this to become an option, but typically we’re able to settle credit card debt for about 40% of what’s owed. And there’s some upsides and downsides of that and we’re going to talk a little bit more about that after the break.

Then, of course, there’s a bankruptcy option. And there’s as you know that have watched the listen to the show, excuse me, before there’s two types of bankruptcy, Chapter 7 and Chapter 13. Chapter 7 is the type of bankruptcy where if you qualify based on your income and if you remember from previous shows, you have to be below what the current monthly income threshold is for your family size. So it’s going to be different if your family of 4 versus a family of 2 versus a family of 6. Or you can, and if you’re able to qualify for that, then you’re able to wipe out their credit card debt completely through what’s called illegal discharge. Even if you don’t qualify for Chapter 7 you might very well qualify for Chapter 13 where you make one payment each month to a trustee over 36 to 60 months depending on your income, and we’ll talk a little bit more about this at the break. You’re listening to Legal Debt Solutions folks. I’m attorney Mark Jump.

Welcome back, folks. You’re listening to Legal Debt Solutions and I’m attorney Mark Jump before the break we were talking about the different ways to resolve credit card debt. If you’re out there and you’re facing a lot of credit card debt, you’ve tuned into the right show this morning and I’d like to outline for you some of the options that are available to you. We talked a little bit about the short history of credit cards and we did that a little bit for fun because it’s interesting and then before the break, we talked about the three major solutions to resolve credit card debt.

Non-Bankruptcy Solutions

And really, in my view, those are seeking out a credit counseling agency to organize all your different credit cards. If you have three, four or five credit cards, they’ll essentially bundle them up in one payment. There’ll be an interest rate attached to it but likely less than what you’re paying right now. And the goal is to provide some discipline for you to get the payments, the payments affordable and also for you to get the credit card debt paid off and that’s going to be the best for your credit.

Another non-bankruptcy solution is what we call debt settlement and that requires typically a lump sum payment on a what’s owed on the credit card and typically requires you to be in default. And most of the credit card companies out there are looking for a default of about 120 to about 160 days before they’ll entertain what we call a debt settlement lump sum offer. And what I mean by that is let’s just assume for conversation purposes that there’s $100,000 of credit card debt, which I realize is a lot, but it’ll make the math easy. And you would hire a law firm like ours to help you resolve that debt through a debt settlement if you’re able to pay $40,000.

That’s typically what we can settle credit card debt for, about 40% of what’s owed. If you’re able to come up with those funds, you might be able to get those funds from a family member, you might be able to borrow it from a 401k, and if we’re able to make an offer of $40,000 likely we can settle it, meaning that the $60,000 is gone or what we call forgiven.

Now there’s a potential downside to this and it’s a tax consequence that you need to be aware of. It doesn’t apply to everyone, although everyone thinks that applies to them. The $60,000 that is forgiven may be imputed to you as what we call debt forgiveness income. Meaning you might receive a 1099 from your credit card company and you might have to report that on your taxes. But you only have to do that to the extent to which you’re solvent. Meaning if your assets, all of your property is more than what all your liabilities are, and guess what folks, that’s typically not the case. And if you’re not solvent, then you don’t need to report that debt forgiveness income on your taxes. So it’s important to talk to your accountant if you have an accountant, to help you with your taxes before you claim that income, on your tax return.

Bankruptcy Solution

The third way is a bankruptcy proceeding. And Chapter 7 is what we’ve talked about before. If you qualify based on income, you might be able to file a Chapter 7, which would allow you to completely eliminate your credit card debt through what we call a legal discharge. You need to qualify based on income. And it’s a very powerful remedy because you might have even my example of $100,000 of credit card debt, and if that’s the case and you qualify otherwise for the relief, you can completely wipe out your credit card debt by filing Chapter 7 even if your income is higher than the current monthly income thresholds that allow you to file Chapter 7, you might very well be able to reorganize your credit card debt under Chapter 13, and what does that mean?

Well, it means you can make one payment to a Chapter 13 trustee, an affordable payment, and that affordable payment may only be enough to pay 10% of what you owe the credit cards. So I’m going back to my example, we could wipe out $90,000 of credit card debt.

Folks, you’ve listened to Legal Debt Solutions this morning. I hope some of this information is helpful. I’m attorney Mark Jump. We’ll talk to you next Sunday.

Outro:
This has been Legal Debt Solutions with your host Mark Jump sponsored by Jump Legal Group. Legal Debt Solutions is your resource for debt resolution, helping you eliminate debt and change your life. To schedule a free consultation, call (614) 481-4480 opinions expressed on this program are those of the hosts, guests, and callers, and not necessarily those of Salem Media Group’s staff, management, or advertisers to in again next week for more Legal Debt Solutions with attorney Mark Jump.

Learn more about how we can help with your credit card debt.

Read more about our featured Attorney in this episode:
Mark Jump