Sunday, November 09, 2008

You know things are getting bad...

...when even Credit Card Companies are suggesting that forgiving some of their cardholder's debt and letting them pay off the rest at 0% interest might be the only way to save the credit card companies' rear-ends from bankruptcy.

The Morning
Credit card issuers want to do you a big favor
By David Lazarus | Special to The Morning Call
November 9, 2008

When I heard last week that banks want to forgive up to 40 percent of some customers' credit-card debt, my first question was, ''What's the catch?''

...this isn't pure altruism. Credit-card issuers would enjoy some significant benefits under the plan, making it an act of self-preservation that just so happens to be in the best interests of potentially millions of cardholders.

In a letter to the Office of the Comptroller of the Currency, which regulates national banks, the Financial Services Roundtable and the Consumer Federation of America called for a change in federal rules regarding payment and taxation of credit-card debt.

The roundtable represents many of the leading credit-card issuers, including JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Capital One Financial Corp.

The banks are proposing that consumers who qualify for partial debt forgiveness be given five years to pay off their remaining balances, rather than the current three to six months.

They're also proposing that consumers not have to pay taxes on any debt forgiven for five years, as opposed to the current requirement that such taxes be paid immediately.

To qualify, a cardholder would first have to see a credit counselor, who would use criteria provided by lenders to determine how much of the consumer's balance could be waived -- anywhere from 10 percent to 40 percent, depending on income, assets and other financial considerations.

No interest would be charged on the remaining amount of credit-card debt...

...The banks are clearly figuring that the economy is going to get worse before it gets better, and that reducing the number of charge-offs would improve their bottom line (even if they can collect only 60 percent of some balances).

The banks also would gain an accounting benefit by not having to write off forgiven debt for five years, thus limiting reported losses for what would hopefully be the duration of the economic downturn.

Even if they're only willing to do the right thing to save their own skins, that's at least a start. If you have a credit card with one of the above mentioned banks, try hard to get in on the ground floor of this program. All of your debt should have been forgiven for the Sabbath year - these companies have both Jews and Christians as members of their Boards and CEOs - but every little bit helps.

In the meantime, it is prudent to make every effort to stop charging, put your cards away, and pay them off as soon as is possible given your circumstances. Paying interest is another drain on your livelihood that you don't need. The best way to increase you budget for everyday essentials is to get out of debt and stay out of it. This is sound financial advise at any time, not just a crisis. Hashem warned us that if we borrowed, we would be slaves to our creditors, and that warning has come true. Now is the time to free ourselves from serving them, and put that money back to serving our own families and communities.

One way to do this is four your shul or community group to raise funds to pay off credit cards and consumer loans being paid at interest, in the form of interest free grants and loans. Only by pulling together will most of us be able to escape from slavery to the Robber Barons. This is year one of the Sabbath year cycle. If your shul or group pulls together to do this, and everyone who receives help signs a commitment to no new credit cards or consumer loans, then by the end of this Sabbath cycle everyone could be out debt and all the interest free loans repaid to the shul or society by the next Sabbath year.

This is a doable plan, if those who are able will make funds available to be loaned interest free, for the good of the shul/community group, and those who are not able solicit donations and give smaller amounts for that purpose. It's a small personal sacrifice for the wealthy to make - giving up interest earnings on the principal - to better the economic position of the community. And for the not-so-wealthy, a portion of their normal charitable giving budget should be committed to the interest-free fund.

We don't need help from outsiders, we don't need scams, frauds, illegal activities, ponzi-schemes, or any other questionalbe way of getting ourselves, our friends, and our family out of credit card and consumer loan debt. If we combine this new initiative with a community pledge to scale back simchas and other optional expenses, then it is very much probable the goal can be accomplished. But we have to be willing to make the commitment and the sacrifices necessary to make it happen. We can't continue on with business as usual - unrealistic expectations - and expect anything to change for the better. If we continue on as we have been, things will only change for the worse.

One way or the other, we're going to show what kind of people we really are. Think about that.

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