Credit Card Debt in New Jersey

8266507462_e84491cbc0According to the Federal Reserve, Americans owe a total of almost $857 billion in credit card debt. That amounts to more than $7,000 per household. This is the third largest source of debt in the country, after mortgage debt and student loan debt.

Consumers are sucked into the credit card debt cycle when they pay less than the full balance of their statement. The unpaid balance accrues interest at rates anywhere from 18-30% – that’s significantly higher than the 6% or so that you’re paying on your mortgage and auto loans. Making minimum payments guarantees that you’ll pay nothing but interest for years – you’re throwing money away. For example, if you have $7,000 in credit card debt, which is the American average, and an interest rate of 25%, it will take you 320 months to pay off your debt. Over that time, you will pay more than $13,000 in interest. That’s almost TWICE your original principal balance. Of course, this assumes that you don’t accrue any new credit card debt along the way. Check out the Credit Card Calculator at to see how long it will take you to pay off your cards and how much interest you’ll be paying.

If you’re like most consumers, especially in a recession, you can’t afford to throw cash at infinite interest payments. The best way to avoid this problem is to stay out of credit card debt in the first place, but if you find yourself falling behind, you have options.

What are my options for getting out of credit card debt?

If you’re struggling with credit card debt, these are the three main ways to get out of it. Don’t waste time and money paying the minimum payments every month – you may never catch up.

1. Pay it off.

Ok, this one probably seems both obvious and impossible, but it’s something to consider. Do you have any liquid assets? Is there some jewelry you could live without? Do you have a second car? The quickest and simplest way out of credit card debt is to pay off the balance in full and move on. Unfortunately, for most people this isn’t possible. If it’s not, there are still other options.

2. Work with a debt settlement or credit-counseling agency.

Take this suggestion with a grain of salt. Debt settlement companies promise the moon, but often can’t deliver. When you work with a debt settlement company, you’ll make monthly payments to them and they’ll put together a pool of funds which they will then offer to your creditor in full satisfaction of your debt. There are a few problems with this approach. First, you’ll have to pay non-refundable fees to the debt settlement company, which is the last thing you need when you’re already strapped for cash. Second, while you’re making payments to the debt settlement company, your debt is still adding up and accruing interest, damaging your credit further. Finally, debt settlement only works if your creditor agrees to it and there’s no guarantee that this will happen.

Creditors aren’t bound in any way to accept an offer from you or a debt settlement company. Debt settlement companies bank on the idea that because your account is in serious default, creditors will settle because they might otherwise get nothing from you. However, creditors may think they have a better chance if they sue you for collection. Consider also how many creditors you’re dealing with. Reaching a settlement agreement with one is much easier than with four or five. Even if you settle with three out of four, the fourth one may refuse, sue you, and garnish your wages for collection.

Instead of a debt settlement, you may be able to reach an agreement with your credit provider to lower your interest rates. It won’t wipe out your debt and you’ll still have to make monthly payments, but it may make your monthly payment easier and allow to make some headway toward repaying the principal amount of your debt.

If your lender does agree to a debt settlement, you may face significant tax consequences. The IRS considers forgiven debt to be a type of income and you’ll probably have to pay taxes on the amount forgiven. If you’re considering working with a debt settlement company, reach out to an experienced bankruptcy attorney first. They’ll be able to help you find a reputable debt settlement company and evaluate your likelihood of a successful settlement.

3. File for bankruptcy.

Filing for bankruptcy will completely eliminate your unsecured debt – including credit card and medical debt. If you’re really struggling, bankruptcy might be the answer for you. When you successfully complete the bankruptcy process, all of your unsecured debt is forgiven – no more monthly bills, no more collection calls, no more threats of wage garnishment or bank levies. Bankruptcy allows you to spend what you would be paying toward credit card debt on your groceries, your mortgage, school supplies, and whatever else you need.

Bankruptcy is different from debt settlement. You’re not offering a lump sum payment and you have the protection of the bankruptcy court. Your balance will drop to zero. Period. Bankruptcy comes with the protection of the automatic stay, which stops collection actions, wage garnishment, foreclosure, and repossessions in their tracks. This gives you the time to organize your finances and walk out of bankruptcy debt-free.

Consumers generally file under one of two main types of bankruptcy: Chapter 7 and Chapter 13. In Chapter 13, you’ll work with creditors and the court to create a payment plan that will last from 3 to 5 years. You’ll be able to keep enough of your income for your ordinary living expenses and you’ll pay your disposable income (whatever is left over) toward your debts. If you don’t make enough money to support a Chapter 13 plan, you’ll file under Chapter 7. In Chapter 7 bankruptcy, you’ll surrender non-exempt assets to the bankruptcy trustee, who will sell them and pay the proceeds toward your unsecured debt. Federal bankruptcy exemptions protect most of your property, and most debtors end up keeping all of their property through the Chapter 7 process. Under either chapter, all of your unsecured debt is forgiven.

Bankruptcy has helped millions of Americans get out from underneath the terrible burden of credit card debt. If you’re struggling with debt, reach out to one of our experienced bankruptcy attorneys to discuss your goals and your options.


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