Credit Cards and Debt Settlement

Credits cards were originally designed to give the consumer short term borrowing ability. The cards were first used by major department stores for purchases only at their locations. In some cases, this was the consumer’s first credit card or credit in their name. Then the first major credit card issued by a non-retail company was the Diner’s Club card. This card was considered to be a business card to cover entertainment and meals and repaid in full each month. Then the major banks become players in issuing credit cards and the borrowers were on their way to creating new financial problems for themselves.

In the beginning, the consumer used the card judiciously and paid off the balance in full monthly. However over time, the consumer started paying only the monthly minimum payment along with a little bit toward the principal balance. The consumer was alright with this practice because they had enough monthly cash flow along with a good job and the economic was doing fine. From time to time because the economic climate was on the up swing, the consumer had equity in their homes. Because of the equity, the consumer would refinance their homes at a lower rate and take monies out to pay off their unsecured debt. This way of handling finances was alright as long as the economic was in a positive position.

This all changed over the past several years. Consumer’s started facing financial hardships, lost of job, reduced salaries, and divorce or faced a medical emergency along with the adjusted interest rate on their mortgages and increased unsecured credit card debt.

The consumer was faced with the reality of how to get out of debt. In most cases, this is the first time many consumers were faced with these uncertain financial times. So the consumer started looking for ways to payoff their financial obligations.

One of the options the consumer is selecting is a debt settlement program. Debt settlement is a method by which a third party negotiates with the lenders to reduce your obligation by up to 50% of the outstanding debt. The consumer puts aside a set amount of monies each month into a “trust/escrow” account over a period of 12 to 48 months depending upon the amount of their credit card debt. The debt settlement company starts to negotiate when at least half of the lowest balance is in the account. This proceed is repeated until all debts are settled.