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Bankruptcy and credit card interest rates

Two main factors push the interest rates on credit cards up. The first is the fact that no asset secures the debt, and the second is the 2009 law limiting the amount of penalties companies can collect on delinquent balances. With interest rates soaring into the 21 percent range for those with less than stellar credit, the monthly payments have become unmanageable for some New Jersey residents. When the credit card debt a person owes reaches this point, filing for bankruptcy could be the answer.

Credit card companies justify raising their interest rates by pointing out that they lend money without any security, which increases the companies' risk if a cardholder is unable to pay the balance. When the law was passed in 2009 regarding penalties, companies felt they had to recover that loss somewhere, so they raised interest rates. Even for someone with excellent credit, the interest on a credit card can become unmanageable. Current estimates put the interest rate for excellent credit at nearly 13 percent, and the rates go up from there based on credit history.

It may be possible to negotiate a lower interest rate with the credit card company -- especially if payments are on time and the consumer has a good credit score. If that does not work, it may be possible to obtain a limited-time zero-interest card. Paying off the balance each month could also allow one to avoid having to pay interest.

However, many New Jersey residents are not able to take advantage of any of these options because they are barely making ends meet and may not have a good credit score. Sometimes, what a person needs is the opportunity to wipe the slate clean and start again. Filing for bankruptcy can provide this opportunity.

Source: CBS News, "Many credit card users paying through the nose", Aimee Picchi, April 21, 2014

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