A Bankruptcy Lawyer’s Blog

What is the Truth About Credit Card Bankruptcy?

Credit card debt can occur for a variety of reasons and can be dealt with in many different ways. However, there is a lot of misinformation out there, some of it from well-meaning individuals and some of it from the credit card companies themselves. With that in mind, let’s try to clarify some misconceptions.

Profit Oriented

Credit card companies would like to make as much money as possible from you, so you can not go to them to expect help in paying off you credit card debt. They make you think that is true, but it is not. In general the deeper in debt you are to them the better it is for them to make a profit from you. When you have a large debt the likelihood of paying it off is less because it is so big. So many people will pay a small amount each month. Just make sure this amount is much larger than the suggested monthly minimum.

Monthly Minimum Payment

Probably the number one money maker for credit card companies is strictly following the common misconception that you can pay off your debt through simply paying your minimum monthly payments. Many insist that by paying your minimum you can keep everything under control, but what they do not mention (outside of the fine print) is that your monthly minimums are really just going to pay down the interest you’ve accrued – your debt remains the same. Only rarely does the money you pay each month actually go into paying down your debt.

How the minimum monthly payments are derived is unique to each credit company. It is a mystery that you yourself have to solve, if you really want to know. Sometimes the formula is buried in the fine print for the brochure that they send you when you first get the card. And sometimes you have to call to find out how they actually do compute it. It is generally considered that the minimum monthly payment covers the interest and maybe a few dollars are left over to pay on the principal. In any case if you only make a minimum payment you will not make any appreciable change in the amount owed and it will be (many) years before you pay off the bill if you don’t continue to charge on the card.

Drive You to Bankruptcy?

Finally, there’s a great many people who believe that the end goal of a credit company is to drive you to credit card bankruptcy. This is both ridiculous and wrong. The truth is they would want you to find a way of prevention from bankruptcy. What credit card companies truly desire is to keep you in debt, not in a financial state where you can’t make payments or they have to accept less than the total you owe them as would occur after filing bankruptcy. That is why they are quite happy to give you a helping hand in regards to paying down your debt. Notice that the statement was ‘paying down’ and not ‘paying off’. As mentioned above, credit card companies want you in debt and paying regularly. It is how the industry makes its biggest profit through your continuous payments.

One proof of the above is that the quicker you pay down your debt, the more likely the credit card company is to increase your spending limit in order to encourage you to use your card more often and thus to ensure that your debt never entirely goes away. There is nothing a credit card company hates more than a person who never uses their card – they want you to continue charging.

The truth is, that credit, if used wisely, is a useful tool in a largely (and increasingly) cashless society. However, if you are not careful, it can result in adding unnecessary debt to your financial responsibilities, something which can result in permanent harm to your financial stability in this uncertain time.

About the Author:
Ken Muller is a credit card debt enthusiast. Visit All About Credit Card Debt for more expert advice on a credit card bankruptcy and tips you can use right now to pay off your credit card debt.