When debts are overwhelming and banks are calling
Many people need credit cards to service their monthly expenses, the trap is easy to fall into, and many have fallen victim to it. First you start out debt free, then your bank sends you a preapproval visa card -you are determined to use it only as an emergency. However in time the card is whipped out to purchase items that cannot be paid for by one or two pay cheques, like a fridge, furniture, updating a wardrobe and so on. After this the card is an essential part in paying bills, dinners and the rest is history. We often justify using our cards for the frequent flyer points yet on balance this does not deliver the on expectations for so many people.
Let’s get one thing clear, we are accountable for our own actions and if we spend the banks money we are accountable to return it with interest. Yet the unspoken issue here is the banks accountability in providing too much credit for an individual to pay it back in reasonable time. Therefore if financial hardship is experienced by the individual then there is an expectation of compromise between creditor and debtor for an alternative arrangement. Based off this very principle the government has built in hardship legislation to the current National Consumer Credit Protection Act 2009.
This means you have options if you cannot pay your credit cards.
In addition to using legislation there are other strategies when dealing with debts:
• Insurance. Many people pay for insurance coverage on their credit cards without realising; credit card insurance can cover your monthly payments whilst you are sick or involuntary unemployed. Contact your bank to see if you are covered.
• Maintain your account in a state of 30 to 59 days arrears. If your account is up-to-date and you need to miss a payment or two then there won’t be any major consequences other than the banks phone calls and letters. Beyond this and you must be aware of the risks involved, at 90 days in arrears you may face a default on your credit report and possible legal action. This kind of collection activity is unlikely if the credit card has a relatively low level of arrears however it’s not advisable if you already have a non-payment history. Ensure to inform your credit provider if you decide to hold off on a payment and you must have a strategy in place in dealing with the problem at a later date.
• Hardship application. Your bank should accept a payment holiday or a reduced payment plan if you are experiencing financial problems. You can receive bank approval for three months without paying your monthly payments.
• Balance transfers. Many financial institutions are offering credit at zero interest for specific periods, if this is a good deal then transfer your debt over to save interest. Just be careful, zero interest is temporary and after the honeymoon you could be burdened with a much higher interest rate than what you have now.
• If you feel your creditor has breached their code of conduct or treated you unfairly there is an option to lodge a complaint through the banks Internal Dispute process. If this process does not satisfy your enquiries you can then lodge a complaint with the Banking Ombudsman.
These options will help you temporarily and is useful if you’re out of work for a month or two or the financial position will improve within a few months. The strategies can keep your creditors at bay but your overriding plan must be how you will get out of debt as soon as you can.