In 2017, folks in Massachusetts and throughout the country added $92.2 billion in credit card debt, which was the most since 2007. That pushed the overall credit card debt in the United States to over $1 trillion, according to the Federal Reserve. In the final quarter of 2017, the average American household owed $8,600, which was up 6 percent from the same time period in 2016.
Over the final quarter of 2017, Americans added $67.6 billion in credit card debt, which was a 16 percent increase from the fourth quarter of 2016. It was also the largest increase in a single quarter since 1986. One explanation for this surge is that banks are lending to people who don't have great credit scores. Another explanation is that credit cards are being used to pay medical debts.
In 2015, Americans paid $338 billion for health service out of their own pockets. Of the individuals who took part in WalletHub's 2018 credit card study, 62.3 percent said that their credit card debt was caused by medical issues. While delinquency rates remain below the 15 percent level that was seen during the Great Recession, they have risen in the past year. In 2017, the delinquency rate was 7.5 percent compared to 7 percent in 2016.
Those who are feeling overwhelmed by credit card debt may benefit from filing for bankruptcy. It may be possible to put a stop to creditor contact as well as halt creditor collection actions, such as a lawsuit. Depending on what a person used a credit card for, it may be possible to have that debt discharged in bankruptcy. However, if a credit card was used for tax or student loan debts, they may need to be reorganized and paid off over time.
The Federal Reserve chair acknowledges that there is little he can do to help student loan borrowers in Massachusetts and elsewhere in the United States. However, he did say in testimony to the Senate Banking Committee that he wasn't sure why student loan debts couldn't readily be discharged in bankruptcy. He also said that student loan debt could have a negative impact on a person for his or her entire life.
Currently, student loan debt can only be discharged if forcing a person to make payments would cause an undue hardship. There is no set standard for what an undue hardship is, but courts generally assume that it is a high standard to meet. Over 40 million Americans have student loans, and their combined debt is roughly $1.4 trillion. In addition to having negative consequences for an individual, the Fed chair expressed concern that it could have a negative impact on the entire economy.
Filing for bankruptcy may make it possible for an individual to obtain debt relief in a variety of ways. For instance, student loan or other debt may be discharged, which means that a debtor no longer has to make payments on it. It is also possible for debt to be reorganized and repaid over the course of three or five years.
Those who decide to ask for bankruptcy protection may be entitled to keep some or all of their property. In Chapter 13 cases, creditors generally cannot move to foreclose on a home or repossess a vehicle. This may make it possible for a debtor to catch up on those or other debts that may have been neglected in favor of making student loan payments. If loan balances remain after the end of the repayment period, they may be discharged.
Massachusetts debtors who file for Chapter 13 bankruptcy while possessing a vehicle may be able to keep that vehicle. Filers may also be able to purchase a vehicle after they have filed or after they have been discharged.
Chapter 13 bankruptcy is a legal process that gives debtors three to five years to use their disposable income to pay off their debts. Filers are very likely to keep the vehicles they already have, but this is not the case in certain situations.
Filers who have auto payments that are extremely expensive may be prevented by the court from using the payment as part of the calculation for disposable income. Chapter 13 bankruptcy allows filers to retain money they will need for sensible and necessary expenses. A significantly large payment, such as that for a luxury vehicle, can impact the repayment schedule.
People who intend to file and have a upside down auto loan may use a loan cramdown, which reduces the loan amount to the current cash value of the vehicle. This is an option only for filers who purchased their vehicle at least 910 days before filing a petition. The remaining amount of the loan will be included in their unsecured debts.
For filers who have payments in arrears, any collections by the lender are typically stayed when bankruptcy is filed. This includes repossession. While filing for bankruptcy does not guarantee that the filers will keep their vehicles, if they pay what is overdue through the bankruptcy payment plan and remain current on future payments, they are likely to retain ownership.
A bankruptcy attorney may advise clients with substantial debts whether Chapter 13 bankruptcy is applicable to their financial situation. The attorney may demonstrate how reorganizing their debt can reduce interest payments, reduce debt and stop creditor harassment.
The rate at which Massachusetts residents and others are filing for bankruptcy is dropping. However, there were still 772,594 bankruptcy filings during a 12-month period that ended in June 2017. One of the main reasons why people file for bankruptcy is because they lost their job. Typically, an individual didn't have enough money to cover his or her mortgage, car payment and other expenses. Ideally, a person will have an emergency fund that can last for up to 12 months.
Even if someone doesn't lose his or her job, a reduction in hours or salary could still make it difficult to make ends meet without an emergency fund. Dealing with medical bills can lead to bankruptcy for a couple of different reasons. First, it may be necessary to put those expenses on a credit card. Second, an individual may choose to make medical payments as opposed to staying current on a mortgage or other debt.
That may lead a person to file to stop a foreclosure even if it was related to mounting medical bills. Individuals who get divorced may be at a higher risk of filing for bankruptcy. This may be due to the cost of legal counsel as well as having to split assets with a spouse as part of the divorce settlement.
Individuals who are struggling to pay their debts may benefit by filing for bankruptcy. Doing so may allow a person to put an end to creditor contact and renegotiate the terms of a secured home or auto loan. It may also be possible for an individual to have unsecured debt balances discharged. In some cases, they may be discharged immediately or at the end of a Chapter 13 repayment period. An attorney may talk more about who qualifies for protection from creditors.
Many Massachusetts residents are struggling to make their credit card payments, but a study from CreditCards.com reveals that individuals and families in other parts of the country have even more serious revolving debt problems. The consumer financial advice website looked at how much the residents of America's 25 most populous cities and regions owed to credit card companies and how long a worker earning average wages would take to pay this debt off, and Boston ranked sixteenth with an average balance of $6,455.
The figures suggest that credit card debt is an especially serious problem in Texas. Dallas-Fort Worth, Houston and San Antonio occupied the second, fourth and fifth places on CreditCards.com's list, and paying this debt off would take workers in these cities at least 19 months. Boston residents earning the area's median wage would have their revolving debt balances cleared in 14 months.
Calculations were performed using an interest rate of 13 percent, which CreditCards.com took from the Federal Reserve's most recent consumer credit report. However, most financial experts expect revolving debt to become even more expensive in the months ahead as interest rates continue to rise. Analysts are also worried because credit card debt is increasing despite a resurgent economy and low rates of unemployment.
Credit card balances often soar following unexpected financial setbacks like illnesses or layoffs, and spiraling levels of debt can seem inescapable to struggling families. However, the nation's bankruptcy laws were drafted to provide second chances and not punish misfortune or poor decisions. Attorneys with debt relief experience could explain the steps involved in filing a personal bankruptcy petition and how doing so puts an end to harassing calls from bill collectors.
Rising interest rates and growing credit card debt balances may create financial issues for Massachusetts residents and others in the future. While increasing debt levels are generally seen during good economic times, it is possible to have too much debt. Now may be the best time for a person to take a strong look at his or her overall financial situation.
This could include taking a look at the amount of money a person owes and how much interest is being paid on that debt. It may be possible to reduce the interest rate by transferring a balance to a new card. Those who have credit card debt may also want to create a plan to pay off the debt and stick to it. How a person chooses to pay off the debt depends on what will work best for them.
If a person needs motivation to get started, the snowball method may work best. To start, an individual pays off the card with the lowest balance and works his or her way up to the card with the highest balance. With the avalanche method, a person starts with the card that has the highest interest rate. While progress may be slower with this method, it generally saves the most money over time.
Those who are looking for debt relief may be able to find it by filing for bankruptcy. Doing so might allow an individual to have debt balances discharged quickly or reorganized to repay over time. While a bankruptcy case is ongoing, creditors generally cannot contact a debtor or take action such as foreclosing on property or repossessing property. In some cases, debtors may retain property such as homes, cars and other valuable possessions during and after a bankruptcy case.
Residents of Massachusetts who have higher credit card debt than they did a year ago might take some comfort in knowing that they are not alone. Americans have more credit card debt now than they did a year ago, according to an Experian annual study, and the Federal Reserve reports that in 2017, the country reached a record high of more than $1 trillion in credit card debt. But the good news is that credit scores are up, too, which suggests that Americans are doing a pretty good job of handling their debts.
The average American has credit card debt of $6,375, which is up 3 percent from last year. But credit scores, which are based on credit history, are averaging 675 on the range of 350-850. That's the highest the average American credit score has been in the decade since the 2008 recession.
Experts say that good credit card management means making payments on time and not overspending. Carrying a balance from month to month means the cardholder is charged interest. As of mid-2017, almost half of Americans had been carrying a credit card balance for more than two years. The average balance is $16,883. The average interest paid yearly is $1,292.
There are two methods experts suggest for paying down credit card debt. The avalanche method targets interest from the top down and involves paying down the credit card with the highest interest rate first and making minimum payments on others until the highest is paid off. The snowball method involves tackling the lowest balance first. The theory is that this can help someone gain momentum by paying off a small debt quickly and then continuing upward towards higher balances.
When someone looks at his or her credit card debt and income and realizes that he or she simply cannot afford to make payments, bankruptcy could be a solution. A bankruptcy filing offers immediate relief from collection efforts by legally putting a stop to them. When someone files bankruptcy, collection calls, wage garnishment and all other attempts to collect money are halted.
Most people in Massachusetts live with some form of debt, whether it be from credit card bills or home loans. A survey of 1,114 people across the nation conducted by CreditCards.com produced a pessimistic view about people's expectations of ever escaping debt. Large majorities of respondents across all age groups expected to never achieve a debt-free life.
Among Millennials, 65 percent believed that they would never pay off debts or could not imagine when it might happen. A slightly larger number of Generation X members, 68 percent, accepted the likelihood of always being in debt. Baby Boomers showed even less confidence as 70 percent doubted their abilities to overcome debt. Within the Silent Generation, which represents people over age 72 in this survey, 83 percent anticipated dying in debt.
People who had the typical debts, such as student loans, car payments, credit cards and home loans, actually expressed more optimism about paying off debts than people with medical debts who use payday loan services. Despite the survey's dismal findings, some people did report that they foresaw a debt-free future. On average, these people felt they would overcome debt in nine years.
A person feeling the pressure from increasing financial burdens could explore the possibility of filing for Chapter 13 bankruptcy. This action might lead to a fresh financial start if a court approves a new payment plan. The services of an attorney could guide someone through the court filings necessary to initiate a bankruptcy. Legal counsel might identify protected assets, such as a primary residence, that could be protected while the debtor prepares a proposal for repaying creditors.
Massachusetts residents may be pleased to hear that the average credit score in America has increased in the past year to 675. That is the highest it has been since 2007. While many assume that millennials struggle with credit, they do not have the lowest average credit score when broken down by generation. That would be Generation Z with an average score of 634.
Millennials have an average credit score of 638, and their overall financial situation may be improving. They tended to enter the workforce during the height of last decade's recession, which made it difficult to find jobs or secure their financial futures. However, their debt levels have decreased 8 percent while their mortgage debt has increased 6 percent. Baby boomers and those who are over the age of 70 both have average credit scores of more than 700. Baby boomers have an average score of 703 while those over 70 have an average score of 729.
Both age groups have significant mortgage debt, but that is generally offset by having little in the way of other debts. Those who are in Generation X are likely recovering from losses related to reduced home values during the Great Recession. They also have an average of $30,334 in non-mortgage debt, which is the highest of all the age groups.
Those who are overwhelmed by credit card debt or other obligations may benefit by filing for bankruptcy. Filing could result in a temporary stay of creditor contact or other collection efforts. There are a variety of eligibility and other requirements that an attorney can outline.
People who file for personal bankruptcy typically do so because they cannot pay their bills with their current earnings and assets. However, many people who seek relief from the Massachusetts bankruptcy courts have some money saved for retirement. Bankruptcy laws protect some retirement accounts from being liquidated, but there are circumstances that could cause a person to lose all or some of their invested savings.
Employer-sponsored accounts are covered by ERISA, the Employee Retirement Income Security Act. This means that people with 401(k) accounts don't have to take hardship withdrawals in order to pay their bills and may file for personal bankruptcy instead. Traditional and Roth IRA owners who have less than $1.3 million invested in those accounts won't have to worry about bankruptcy trustees liquidating any of their funds as long as they aren't in the process of taking distributions from the accounts. Pensions may not be exempt from bankruptcy depending on whether they are covered under ERISA or qualified as exempt under the tax code.
Withdrawals are not the only vulnerable funds. Money that parents and grandparents set aside for college in 529 plans is exempt from bankruptcy as long as it was deposited two years or more prior to the filing. However, anything contributed to a 529 plan in the year before they file for bankruptcy protection may be seized.
Bankruptcy offers people who are struggling financially the opportunity to get a fresh start. In most cases, retirement assets are exempt. However, it's important for anyone with significant retirement assets or currently getting disbursements from their retirement accounts to consult an experienced bankruptcy attorney. Bankruptcy trustees handle assets differently in Chapter 7 and Chapter 13 bankruptcies, so people who have trouble paying their bills may wish to work with an attorney to make the right choice.
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