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Do Not Be Overwhelmed By Your Debts

Report shows American credit card debt is starting to rise again

Controlling credit card spending and paying down accumulated debt is an ongoing challenge for many people. As some Appleton residents have learned firsthand, even small increases in credit card debt can create a significant financial burden and raise the risk of the borrower defaulting. Unfortunately, a recent report indicates that many Americans are once again taking on credit card debt.

A sudden spending boost

During the fourth quarter of 2013, American debt started noticeably increasing again, according to the New York Times. The 2.1-percent growth in household debt marked the largest increase since the recession. However, this rise was mostly due to mortgages, student loans and auto loans.

CNBC recently stated that a new study from CardHub.com indicates that credit card debt has started rising as well. Consumers started off the first quarter of 2014 by paying down a total of $32.5 billion of debt. However, during the second quarter, consumers accumulated $28.2 billion of new debt, marking the greatest buildup to take place in the last six years. The study also produced the following figures:

  • With second-quarter spending factored in, average household debt increased from $6,682 to $6,802.
  • By the end of the year, average household debt will probably top $7,000.
  • The average household debt at the start of the recession, when many people could no longer keep up with their obligations, was $8,400.

The increases may seem small, but even slight changes can push debtors past the tipping point. CNBC also points out that holiday spending is unlikely to help households fighting with rising debt. Last year, total holiday spending across the U.S. was $602.1 billion, with the average household spending $730 on seasonal items, from decorations to presents.

People who are facing accelerating credit card debt despite their best efforts may want to consider other ways to resolve the situation. People with credit card debt may be able to find relief through filing either Chapter 7 or Chapter 13 bankruptcy.

Debt relief options

Under the Bankruptcy Code, in Chapter 7 bankruptcy, a debtor does not enter into any kind of repayment plan. Instead, assets that are not exempt from liquidation are sold to pay off the debtor’s obligations. Most credit card debt can either be paid off in this manner or discharged. To qualify for Chapter 7, debtors must have income that was, on average, less than $12,475 per month during the five years before filing.

Chapter 13 bankruptcy, meanwhile, allows debtors to keep their property while repaying their debts with a three- to five-year repayment plan. Secure debts are rescheduled under this bankruptcy. Unsecured debts that cannot be discharged also take priority during repayment. Credit card debts may be discharged if they have not been paid off at the end of the plan. To qualify for Chapter 13, debtors must have regular income and provide a repayment plan.

The most appropriate chapter of bankruptcy may depend on a person’s assets, income and long-term goals. Of course, some people may also benefit from finding debt relief through alternatives to bankruptcy, such as Wisconsin’s Section 128 amortization.

Anyone facing growing credit card debt and considering filing for bankruptcy can benefit from meeting with a bankruptcy attorney to discuss the different chapters of bankruptcy, along with possible alternatives to bankruptcy, before making any final decisions.