…… & NOW CREDIT CARD CRISIS IN AMERICA
Emergence of global financial meltdown was the effect of failure of the sub-prime mortgage and financial securities market. (Sub-prime borrowers were those that had less healthy loan repayment abilities.) The US is in deep financial trouble. The US credit card default rate have reached an all time high of 13% in March-10, and the total outstanding credit card debts per household which holds credit card debt, reached a staggering $16000 in the same month. The survey conducted by Fitch Ratings reveals that 98% of the total revolving debts in the US are made up of credit cards. Another astonishing fact was that 92 million of all US households hold one or more credit cards. Since 1970s fall in real wages of Americans have increased the usage of credit cards in the country. Americans mostly use the credit cards on housing, food, education, and health care. But with unemployment rates still hovering around 10% mark, default rates have increased over the past two years. Thereby catalyzing concerns that a chain reaction could pull the entire system down.
Credit card debt
• Average credit card debt per household with credit card debt: $15,788
• 76 percent of undergraduates have credit cards, and the average undergrad has $2,200 in credit card. Additionally, they will amass almost $20,000 in student debt. (Source: Nellie Mae, “Undergraduate Students and Credit Cards in 2004: An Analysis of Usage Rates and Trends”)
• Total U.S. consumer revolving debt fell to $866 billion at the end of 2009, down from $958 billion at the end of 2008. About 98 percent of that debt was credit card debt. (Source: Federal Reserve’s G.19 report, March 2010)
• The mean, or average, unpaid credit card balance last month was $3,389. The median is $90. (Source: “The Survey of Consumer Payment Choice,” Federal Reserve Bank of Boston, January 2010)
• About 45 percent of consumers said their unpaid credit card balance had gotten “lower” or “much lower” in the past 12 months. Only 26 percent said it had gotten “higher” or “much higher.”
DEBT COUNSELLING: AN INSIGHT- II
(…cont.)HOW DEBT COUNSELLING WORKS?
Debt counselors assess your requirements and financial status in totality and brief you about the cost involved. The next stage is to jot down the sources of income and outflows like installments of loans, intrest, insurance premiums etc. This centre helps you to restructure the outflows so that you live a debt free life. Banks are ready for settlement of loans as they want to avoid loans from becoming NPA’s. These services are free of cost.
TIPS TO GET OUT OF DEBT
- Firstly you should inform your spouse and parents about your debts.
- Keep minimum no. of credit cards. Give preference in repayments to those whose intrest rates & principal amounts are high and then other debts.
- Go for One Time Settlement (OTS) if the bank allows the defaulter to settle all dues in one time.
- If OTS is not possible restructure your loans, premiums. Draft a letter to bank stating your inability to pay EMI and asking for restructure.
- Transfer your debt from one financial institution to another which offers you low intrest rates and flexible payment options.
- In the worst case, if you have lost all money and do not have any source of income then file a petition in the court for insolvency. The court will take over all the assets and pay all your debts in pro-rata basis.
DEBT COUNSELLING CENTRES IN INDIA
There are various banks and financial institutions which runs debt counselling centers as a part of their ‘Corporate Social Responsibility’. Where as for customers it’s a ‘Goodwill Gesture’. The banks which provide these services in India are:
· Bank of India’s Abhay (http://www.bankofindia.com/abhay.aspx)
· ICICI Bank’s Disha Financial Counselling (http://dishafc.org)
· This site is an initiative of the Indian Banks’ Association, India Cards Council and MasterCard which offers free financial education (is http://money4you.in).
· Bank of Baroda’s (http://www.bankofbaroda.com/bgpk.asp) and many more banks.
CONCLUSION
It has been rightly said that ‘Money is the root cause of all evils’. Most of the people allow the power of money to control them. Most of the people have misconception that money solves all the problems. But in fact it accelerates the problems. If we ask people why we need money? The most common answers we find that they want to get rich or ‘I’m in debt so I need money’. Debt counselling centers helps you to have a sound sleep