What is one of the greatest predictors of consumer bankruptcy? Try credit card debt. If you have a significant amount of credit card debt, say more than $10,000, the odds are far greater that you’ll one day have to declare either Chapter 13 or Chapter 7 bankruptcy. Bankruptcy Canada, a debt-information Web site serving Canadian citizens, reported on the experience of a bankruptcy trustee who said that 93 percent of his clients who did file for bankruptcy protection had large amounts of unpaid credit card debt. These clients had an average credit card debt amount just under $20,000.
Credit Card-Bankruptcy Link
It’s not surprising that there’s a strong link between credit card debt and bankruptcy. Credit card debt has a way of growing out of control quickly. Part of it is the high interest rates that credit card companies charge their cardholders. These sky-high rates, sometimes above 20 percent, help large amounts of credit card debt grow into even more massive levels of debt. It’s easy, then, for cardholders to become overwhelmed. Those who struggle to pay just their minimum monthly payment will watch helplessly as their debt continues to grow, especially if they don’t change the negative spending habits that led them to misuse their credit cards in the first place. Often, consumers struggling with high credit card debt see only one way out of their financial predicament: bankruptcy.
A Tough Choice
Filing for bankruptcy, though, isn’t an easy decision. Despite what some critics may think, bankruptcy doesn’t allow consumers to simply wipe away their past financial mistakes. In fact, bankruptcy haunts consumers for up to a decade. Those consumers who file for Chapter 7 bankruptcy, in which some or all of their debt is eliminated, will have a black mark on their credit report for 10 years. During these years, they’ll struggle to obtain mortgage, auto or personal loans without having to pay sky-high interest rates on them. Those consumers who file for Chapter 13 bankruptcy protection, in which a judge sets up a repayment plan for them, will have a similar mark on their credit reports for seven years. Again, during this time they will struggle to borrow money.
Other Options
This is why financial advisors recommend that consumers seek out any option they can find to help them avoid bankruptcy. This includes everything from debt consolidation loans to personal loans from family members. To avoid having to make these difficult decisions, you should make sure to use your credit card wisely. Don’t overspend. Don’t carry a balance from month to month. Following this advice is the surest way to avoid the trap. |
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