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Credit Card Discharge


A credit card discharge is when a credit card company discharges the balance on your credit card in return for a lump sum payment.

Why is this done? Usually its done when the cardholder hasn’t made a payment in months and it is looking as though he may default on the balance. If initiated by the credit card company, the timing is usually done just prior to the credit card company selling the debt to a debt collection company to collect the money.

The banks and card companies feel that a credit card discharge enables them to get back their principal, as well as a few extra dollars even though they lose out on the interest that they would theoretically have received if the cardholder has made all his payments on time. The cardholder often welcomes this if he is able to come up with the lump sum from another source. It can possibly reduce his debt load immediately and drastically.

In other cases, these types of credit card discharges are typically initiated by debt reduction companies. For a fee, they promise to get you out of debt by negotiating with the credit card companies to pay off your balance. Although there are good debt reduction companies available, many companies of this type cannot do what they are advertising – at least not without negatively impacting your credit score for years to come.

For example, some times these companies will require that you take out a loan in order to pay off the credit card discharge amount as well as their fee. So you now have another loan to pay off, although it will probably be structured so that you pay out less per month than you were paying on your credit card. But, in addition, because of the discharged amount, your credit score will still take a big hit.

Bankruptcy and Credit Card Discharges

Credit card judgements may also occur when a person is successful if filing for bankruptcy. In a typical bankruptcy case, the debtor will have most of his assets taken and liquidated for what they will bear. The proceeds of these assets will then be distributed among the creditors – including credit card companies.

All remaining debts will be discharged leaving the debtor free and clear of financial obligations. If the credit card company can prove that fraud was perpetrated in applying for their credit card and taking advantage of its benefits, the court may rule that the amount owed is not discharged – and the debtor will still owe the credit card company. In other cases, however, the credit card company is out of luck.

The majority of credit card discharges in the United States are prompted by credit card expenses getting totally out of control. When looked at a bit deeper – the trigger for the exploding credit card expenses usually is one of two things – loss of a job or a catastrophic illness in the family. In either case, suddenly not having enough income for their needs, the family is forced to use their credit card for food  and medical expenses. Sadly, this is happening more and more for families all across the country.


Debt Management Companies
Many companies find themselves downsizing in this economy, but debt management companies seem to be very much on the rise.

Debt Relief Programs
When looking at various debt relief programs to help you with paying down a large debt, there are a few things you should look for.



 

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