Credit Card Debt FAQs
The US is drowning in personal debt and a significant portion of that debt is tied to credit cards. The average household has over $8,200 worth of credit card debt, accounting for a significant percentage of the $13.5 trillion US consumer debt.
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Whether you’re battling with this issue yourself or just seeking to understand more about it, this credit card debt FAQ can help.
Will Credit Card Debt Stop me from Getting a Mortgage?
Simply having credit card debt isn’t enough to stop you from getting a mortgage. If that were the case, the mortgage industry would collapse. However, if you have a lot of debt and a low Debt-to-Income ratio, then this could reduce your chances. This is also true if you have a poor credit score.
Will Credit Card Debt Impact my Security Clearance?
Debt is considered a security risk because an employee struggling with growing debts is deemed to be more of a liability. You shouldn’t have an issue if you have a relatively small amount of debt, but a lot of debt, in addition to foreclosures, collection judgments, and any financial crimes, can greatly reduce your chance of getting clearance.
Does it Affect Immigration?
Historically, “civil debts” like credit cards and are not factored into an immigration application and therefore did not impact an individual’s chances. However, the rules have changed over the years and an initiative in August 2019 means credit reports are now taken into consideration.
If you have a lot of debt and your score has been impacted as a result, you could be denied entry.
Is Credit Card Debt Bad?
All debt is bad to an extent and credit cards are no exception. However, it’s not evil. A credit card provides you with a revolving line of credit that you can use when you need it. If you’re able to pay your balance every month, then you can even take advantage of perks and benefits.
Credit card debt becomes problematic when there is a lot of it, and you find yourself taking out more credit cards just to pay off previous ones. Interest payments rise, costs spiral, and before long you find yourself in serious trouble.
- Can you Go to Jail? No, you cannot be jailed for non-payment of a civil debt, which includes cards, loans, and medical bills (but not taxes and child support).
- Can it Declare you Bankrupt? This is a decision you make yourself and one that may actually help you with your spiraling debts.
- Can it Stop me from Getting a Loan? Yes. If you have a poor credit history resulting from amounting credit card debt, you may struggle to get a loan.
Will it Go Away on its Own?
Debt can go away on its own, but it takes a long time, and, in that time, it can do a lot of damage. If you stop meeting your repayments then the debt becomes delinquent, at which point it may be sold to a collection agency. After a while, if that agency is unable to collect the debt, then its statute of limitations will pass, and you’ll be in the clear.
But don’t get your hopes up. A lot can happen in that time. Firstly, your credit score will be destroyed and your hopes of getting any kind of credit will greatly diminish. This won’t last forever, but at the very least you’ll need to deal with it for 7 years after the date of delinquency.
Secondly, the collection agency won’t give up easily. They will chase any assets that you have and may also look to garnish your wages.
Debt can be forgiven, but rarely in its entirety. If your debt has been sold to a collection agency, they will look to negotiate a deal with you. They buy debt very cheaply, so you have a lot of room to maneuver here. If you have $20,000 worth of debt and agree a $10,000 payment plan, that’s $10,000 that has been forgiven; if you agree to clear the debt following a single lump-sum payment of $5,000, then $15,000 has been forgiven.
What Happens to Credit Card Debt When You Die?
Three-quarters of Americans die in debt and even in death, there is no escape. Your debt will be passed into your estate and must be paid by your heirs. As an example, if you own your house outright, have $20,000 worth of savings and have accumulated $10,000 worth of credit card debt, then your executor can use $10,000 of those savings to clear the debt, before dividing the rest of the money and assets as per your wishes.
If you don’t have any assets for your relatives to inherit, then the debt may be wiped clean, but there are exceptions:
- If they co-signed
- If the account is jointly owned (authorized users don’t count)
Laws differ from state to state, however, and what applies to credit card debt doesn’t necessarily apply to other types of debt. Always consult with an expert if you have been asked to cover the costs of a deceased relative’s debt and don’t believe you should be held accountable.
Can Credit Card Debt Cost you your House?
Credit card debt is unsecured, which means it is not attached to an asset, such as a house or a car. It is highly unlikely, therefore, that you could lose your house.
However, there are circumstances where this is possible. If you are taken to court over your debts and the lender wins a judgment against you, then it could lead to further action and the loss of an asset. This is very rare though.
Will it Follow you Overseas?
Your credit card debt will not follow you outside of the United States. Your credit report will also be wiped, and you will need to start afresh. However, if a debt collector wins a judgment against you while you are in the country, they can chase any money that you have in the US. This includes assets, savings, and funds residing in a checking account.
How Can You Clear Credit Card Debt?
There are a few ways that you can clear credit card debt beyond simply meeting the repayments:
- Settlement: A debt specialist will negotiate with your creditors to clear debts for less than the balance owed.
- Budgeting: Saving more, selling unwanted goods, and meeting more than the minimum repayments can greatly reduce your debt and clear it early.
Consolidation: A single, low-interest loan is acquired and used to pay-off all debts, leading to easier and cheaper repayments.