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Negative amortization and the plague of revolving debt

No one likes to deal with debt, but sometimes there is no other choice than to confront a problem head-on. Ignoring debt, particularly revolving debt like credit card debt, tends to be a recipe for disaster. This is especially true when the interest on the debt is so high that the balances are increasing by more than the monthly payments. If this scenario is a little too familiar to some Tennessee readers, legal advice on bankruptcy and settlement might be necessary.

When the balance of person's credit card bills are increasing faster than they can make payments, they are experiencing what is known in financial terms as "negative amortization." While federal rules introduced in 2003 require credit card companies to set minimum payments that will ultimately eliminate principal over a "reasonable period of time," this does not guarantee that borrowers will be able to make minimum payments.

When this occurs financial challenges can quickly get out of hand. However, there are solutions. One way to handle a situation like the one described above is to negotiate a debt settlement agreement. While it may not seem likely, it is possible to negotiate a reduction in the total amount of credit card debt that is owed to a credit card company or even to negotiate more favorable repayment terms to avoid bankruptcy.

If negotiating a debt settlement agreement is not a possibility, sometimes because the financial situation is so severe that new terms cannot be met, filing for bankruptcy may be the next option. Bankruptcy can allow a debtor to extinguish credit card debt and start fresh with minimal complications. While bankruptcy is understandably a difficult choice, when someone is facing negative amortization with no clear solution, it may be the most reasonable answer.

Source: Forbes, "Repayment, settlement, bankruptcy: facing debt from failed business," Elaine Pofeldt, Aug. 7, 2013

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Mark T. Young & Associates
2895 Northpoint Blvd.
Hixson, TN 37343

Toll Free: 888-376-0282
Phone: 423-933-1606
Fax: 423-877-0363
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