Credit Cards are Forcing Consumers into Bankruptcy

A couple months ago I made a decision that I could no longer afford to make minimum payments on all my credit cards and I needed to file a Chapter 7 bankruptcy. My attorney suggested that I stop making payments on these credit cards since they were going to be discharged with the bankruptcy and it would really be a waste of my money (plus the fact that the only way I was able to make these payments was to continue to charge other living expenses).

Up until this time, I had always made my payments on time and had very good percentage rates. Yesterday I was looking at one of my credit card statements and noticed 3 things.

1. They raised my interest rate to 32%
2. They charged me a $49 late fee
3. They lowered my credit limit and charged me a $49 over the limit fee



I was warned that my interest rates would skyrocket and the $49 late fee was also expected but the over the limit fee almost made me laugh. This particular card had a $12000 limit before I stopped making payments and I owed them $6400. They lowered my limit to $6500 and then added the interest and late fees which pushed me over the limit. That’s crazy!

This is what I don’t understand. I feel like I now have no choice but to file bankruptcy. At this time, I’m at the point of no return. If I decided not to file bankruptcy my credit cards would now be way out of control, and that’s only after a couple months without payments. Why would the credit cards want to put someone in this situation?

The reason why is because all they care about is taking advantage of consumers and making as much profit as possible. Many people are honestly trying to pay back their debts but if their payments are late they are now accessed a late fee, over the limit fee, and a huge interest rate. They can keep making those minimum payments for years but their balances will continue to grow, even if they don’t make anymore purchases.

The ironic thing is, if they stop making their payments the creditor will write off the debt and send it to a debt collector. At that point the balance will stop rising, although they may be harassed by the debt collector.

The following is an excerpt from an article I found at http://www.consumerlaw.org

Six-Year Struggle to Repay Debt – A Story of Unending Fees
In May 1997, Ruth Owens stopped using her credit card, made no further purchases or cash advances, and tried to pay off her debt to Discover Bank. At that time, she owed $1,963. Over the next six years, Ms. Owens made $3,492 in payments to Discover Bank. One might assume this was enough to pay off her debt. After all, if Ms. Owens had made the same payments on a $2,000 loan with interest at 21% annual percentage rate (the usury limit in many states), her debt would be paid off. Let’s see what happened to Ms. Owens and her payments.

From May 1997 until her account was sent for collection in May 2003, not one penny of Ms. Owens $3,492 in payments went to reduce her debt. During this time, Discover Bank charged Ms. Owens various fees that sucked up all of her payments and caused her debt to grow even larger. The following fees and interest were charged to Ms. Owens’ account:

Fees and Interest
Overlimit Fees $ 1,518.00
Late Fees $ 1,160.00
Credit Insurance 1 (CreditSafe)$ 369.62
Interest and Other Fees $ 6,008.66
Total $ 9,056.28

So despite having received substantial payments for six years from Ms. Owens (all that she could really afford), Discover Bank claimed that she still owed $5,564 when they filed a collection lawsuit against her in an Ohio court.

After having paid $3,492 on a $1,963 debt, Ms. Owens balance grew to $5,564.
Card companies like Discover Bank make huge profits off customers like Ms. Owens. Rather than work with these consumers to reduce their debt by curbing the excess fees and interest, card companies prefer to get as much out of consumers for as long as possible until they eventually stop paying or file bankruptcy.

In this case, Ms. Owens would have been far better off if she simply stopped paying Discover Bank years earlier and had them sue her in state court. If Discover Bank had gotten a court judgment for $2,000, all of the card fees and high-rate interest would have stopped and Discover would have then been entitled to 10% or less interest per year under Ohio law. Rather than have her debt increase, Ms. Owens’ payments would have paid off the debt in full in approximately 4 years.

-End of Excerpt-

This is just one example of how credit card companies are abusing consumers. If you find yourself in a position where you can only afford minimum payments and your balances continue to increase you have to make a decision on how you’re going to take care of this debt. You need to either find a way to pay this debt off quickly to avoid the outrageous fees or you may need to consider bankruptcy among other alternatives. I know one thing. I will NOT carry a balance on another credit card again. Not even to rebuild my credit after bankruptcy. Mark my words, please.