Oran Hall | Serious credit card crisis
QUESTION: I have had an outstanding credit card amount since 2012. The card limit was more than $200,000, and it gathered interest of $640,000. I managed to pay up the principal amount, but the collectors still insist on the interest, which I have told them repeatedly I am unable to pay. My question is, what are my rights or options?
FINANCIAL ADVISER: It seems to me that you are fed up with the collectors for pressuring you to clear your debt. I do not have much comfort to give you, but I hope you can devise a way to agree with the issuer of the card on how you will settle the debt before the situation gets worse.
You no doubt remember that the bank issued a cardholder agreement to you when you entered into an arrangement with it to use its credit card. Although there may be slight variations in the agreements crafted by the various financial institutions that issue credit cards, they tend to be the same in essence.
Therefore, I have examined one such cardholder agreement and will mention some of its clauses. The first clause states that the agreement is governed by the laws of the country in which the card is issued, that the agreement is in force between the cardholder and the bank, and that the credit card application forms are part of the agreement. So you are in a legal relationship with the bank.
It states that when you use the card or allow somebody else to do so, you incur a debt, and that the bank adds the interest, service charges, and annual fees that it charges under the agreement to the debt, and they form part of it. It makes it clear that the cardholder agrees to pay the debt to the bank. It also provides for the cardholder to make a minimum monthly payment if unable to make full payment on the due date and spells out clearly how the interest is calculated.
Another clause of the cardholder agreement states that the bank may require the cardholder or the cardholder’s estate, as the case may be, to pay immediately the total debt in the event of failure to meet the terms of the agreement, insolvency, death, and “upon legal attachment, levy or execution” against the cardholder or the cardholder’s estate or property.
It gets worse. According to the agreement, should it become necessary for the bank to enforce its rights under the terms of the agreement in any legal action, the cardholder is required to reimburse it for all costs and expenses, including reasonable attorney’s fees incurred as a result of such legal action.
You know, it is just like you lending your money to somebody. You would want to recover it according to terms agreed, and it seems to me that the bank is doing what it needs to do to recover its money.
It is such a pity that it had to come to this. Interest charges on credit card debt are high because credit card debt is unsecured, so it is high-risk debt where the financial institutions are concerned. Whether the rates are reasonable or not is another matter. Bear in mind that the longer you take to settle, the more it will cost in the end.
As painful as this may be to you, you have a responsibility to honour your obligations. You should not see the efforts of the bank to recover its money as harassment. You should note that financial institutions make money by lending. They charge interest on the funds they advance to their clients. It is therefore not enough to say that you have paid the principal and to complain that the collectors are insisting on the interest. The interest is, indeed, debt.
In a general way, credit card debt should be seen and treated for what it is – short-term debt. It is not a means of meeting normal living expenses, and there should be a clear view of how the debt is to be paid before it is incurred. Debt, more so expensive credit card debt, is not to be treated flippantly.
Perhaps you may want to negotiate with the bank to grant you a loan to liquidate the credit card debt. It would take time to liquidate it, but, in the end, it would be no more.
Oran A. Hall, the principal author of ‘The Handbook of Personal Financial Planning’, offers personal financial planning advice and email@example.com.