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CBS News
5 days ago
- Business
- CBS News
How long will it take to pay off $40,000 in credit card debt?
Credit card debt has reached alarming heights for millions of Americans, with many cardholders now carrying balances that would have seemed unthinkable just a few years ago. For example, the average cardholder now carries about $8,000 in total credit card debt, but with so many people now reliant on their credit cards to make ends meet, some cardholders are carrying a lot more than that. And if you're dealing with a hefty level of credit card debt — let's say $40,000 worth — even the most disciplined cardholders can find themselves trapped in a cycle where the monthly payments barely make a dent in the balance. That's because at today's nearly 22% average credit card rate, the mathematics of this type of high-rate debt can work against you in brutal ways. When you're carrying $40,000 worth of debt across multiple cards, the interest charges alone can easily cost you hundreds of dollars per month, and if you're only making the minimum payments, that money is going almost entirely toward interest rather than reducing what you actually owe. This creates a situation in which years of payments can pass without meaningful progress. How long will it realistically take to dig out of a $40,000 credit card debt hole, though, and what strategies can help you do it faster? Here's what you need to know. Find out whether you qualify to have your credit card debt forgiven now. Let's look at several realistic repayment scenarios for a $40,000 credit card balance at the current average rate of 22.76%: If you stick to minimum payments, which is typically around 1% of your balance plus interest, your minimum payment would start at about $1,166.67 per month. Here's how long it would take to pay off what's owed: If you can commit to a slightly higher fixed payment of $1,200 per month, here's how long it would take you to pay off the full balance: Here's how long it would take to pay off with a more aggressive $1,500 fixed monthly payment: And, here's how long it would take for those who can make more substantial monthly payments of $1,800: Note, though, that these calculations assume you're not adding any new charges to your cards, which is a critical factor that's easy to overlook when planning your debt elimination strategy. Learn more about the debt relief strategies available to you today. When you're dealing with $40,000 in credit card debt, traditional budgeting and payment increases might not be enough. Here are debt relief approaches specifically designed for large balances: Debt settlement, also referred to as debt forgiveness, is often the most viable option for substantial credit card debt. Through this process, you or the debt relief company you work with negotiate with your creditors to settle the debt for a lump sum payment that's less than what you owe. While it can vary, the average debt settlement typically results in paying 50% to 70% of the original balance. While debt settlement will impact your credit score and may have tax implications, it can provide a realistic path to becoming debt-free in two to four years rather than decades. Consolidating your debt can be a smart approach if you have decent credit and can qualify for rates significantly lower than your credit cards. A $40,000 debt consolidation loan at 12% APR over five years would cost about $889 monthly but save you tens of thousands in interest compared to making just the minimum payments. Transferring your balance to a card with a 0% promotional interest rate can be more complex with large amounts of credit card debt because most cards have transfer limits. However, you might be able to move portions of your debt to a card with a 0% APR promotional offer, giving you breathing room to attack the principal more aggressively. If you enroll in a debt management program, the credit counseling agency you work with can help you come up with a realistic payment plan and negotiate reduced interest rates and fees with your creditors, often cutting your rates to a fraction of what they currently are. This approach keeps your accounts in good standing and is less damaging to your credit than debt settlement. Filing for bankruptcy might be appropriate if your debt-to-income ratio is unmanageable and other debt relief options aren't viable. Filing for Chapter 7 can eliminate credit card debt entirely, while Chapter 13 creates a structured repayment plan. Carrying $40,000 in credit card debt is undeniably serious, but it's not an insurmountable issue. It's important to recognize, though, that making just the minimum payments will keep you trapped for decades while costing you a hefty amount in interest. So, it's important to come up with a plan that lets you tackle this amount of debt in a better way, whether through aggressive payment increases, debt consolidation or another type of debt relief. The longer you wait, though, the more expensive your debt becomes, so evaluate your options and choose the strategy that aligns with your financial situation and your long-term goals.
Forbes
02-07-2025
- Business
- Forbes
When Is It Too Late For Asset Protection Planning?
The Judgment is the sword and Asset Protection is the shield. Asset protection planning is where a person takes steps to disassociate themselves from their current assets so that they are no longer available to creditors. Although asset protection planning as a discrete practice area for attorneys has only existed since the 1980s, folks with valuable assets have been trying to legally distance those assets from potential creditors since there were valuable assets. The Romans, for instance, promulgated laws that prohibited a debtor from transferring away assets so as to cheat creditors, and these Roman laws were the basis of the fraudulent transfers laws found in Anglo-American law. Some asset protection is proper and will be recognized as valid by the courts. Some asset protection is improper and the courts will set it aside, and may also issue certain penalties for the attempt. Questions of whether certain asset protection is proper or improper usually comes down to the timing of the transfers involved. If the asset protection planning is done too late, then it will likely be both ineffective and the debtor (and possibly the transferee) will be put into a potentially worse situation than before. Understanding The Dividing Line So, when does asset protection go from being proper to improper? To answer this question, one must first understand the concept of a claim. The word claim is a term-of-art in fraudulent transfer law which basically means a legal liability arising from some event. A creditor has a claim against the debtor. The claim can be contingent or unliquidated. A claim arises at the precise moment in time that the event giving rise to the liability occurs. To answer the main question: Asset protection goes from being proper to improper at the time that the claim arises, i.e., at the time that the event giving rise to the liability occurs. This is the relevant point in time. Asset protection planning done before a claim arises is proper; asset protection planning after a claim arises is improper. It is a clear delineation. In explaining this concept to folks who contact me, they'll often say the following things: Where this usually comes up is in the context of personal guarantees. The usual line that I hear will be something like this: "The loan is not in default yet, but I'm concerned that it might be and I've signed a personal guarantee." It's too late to do asset protection planning. For purposes of determining when a claim exists, the claim arose on the date that the guarantee was entered into. That is when the guarantee liability arose. Thus, if somebody has entered into a personal guarantee, it is probably too late to do any asset protection planning even if the project is still doing well and the underlying loan obligation is not in default. The next thing they'll say is, "Can I at least protect assets that were not on the financial statement that I gave to the bank?" No, that does not matter one iota. A personal guarantee is a pledge of all of one's non-exempt assets to back a debt, whether disclosed or not. A similar circumstance is one that we could call "the retiring doctor". This is the physician who retires, but is concerned that something in the past has occurred that the doctor is not yet aware of, but which might later turn into a problem for the patient and thus trigger a malpractice lawsuit. Unfortunately, if the doctor has done something negligently, then that event has already occurred and the claim already exists whether the patient or the doctor knows about it or not. Thus, the doctor cannot do asset protection planning (unless the doctor has tail coverage against such negligence claims, in which case the doctor doesn't have to worry about this in the first place and can still do asset protection against other unforeseen future events). Note that the same is true for all professionals, e.g., the architect who is concerned about a skyrise condo collapsing someday. Common situations where it is too late to do asset protection planning include: In all these situations, asset protection cannot properly be done and at rate it is unlikely to be effective. In fact, trying to do such planning in these situations can easily make the debtor's situation worse ― and possibly much worse ― as will next be discussed. Downsides Of Too Late Transfers Once a claim has arisen, then it is not possible to do proper asset protection going forward aside perhaps from some exemption planning in certain states. At the point in time that a claim arises, the planning is not proper asset protection planning at all but simply good old fashioned fraud on creditors. This can generate a variety of bad outcomes: In other words, by engaging in a fraudulent transfer a debtor can easily make their situation much worse than if they just let the creditor take the asset. One of the problems in this area is that there are "planners" (and I use that term quite loosely) who will advocate and assist with the making of fraudulent transfers. These folks will take their fees from the debtor and then basically try to disappear when things go badly. If the debtor complains, their defense will be something like, "well, you were going to lose that asset anyway." Thankfully, the rise of theories of liability for creditors suing these planners have been expanding and there are now much fewer of them still around. Also, case law has now established that it is possible for a creditor, receiver or bankruptcy trustee to take over the debtor's malpractice cause of action against the asset protection planner who advised a transfer that resulted in a fraudulent transfer. How To Avoid This Mess To have a chance of succeeding, asset protection planning must be done in advance of any claims. It is analogous to getting a flu shot: You get the shot when you are healthy, not when your throat starts to feel scratchy because then it is too late. Continuing this analogy, trying to do asset protection after a claim arises is like getting the flu shot after you already have the flu. In the best case, it will not do anything. The difference is that, as described above, post-claim transfers can make the debtor's situation much worse. For asset protection planning to be effective, it must be done at a time when there are no significant creditors, either known or unknown, and great care must be taken to ensure that enough assets remain outside of the asset protection plan such that there are no arguments of insolvency at the time of the planning. But therein lies the problem with asset protection planning, which is that most people don't think of it until it is too late. Most folks are optimists in that they think they will not have a problem until the moment they do. By that point, however, asset protection planning can no longer be properly done. So, don't wait until you get the creditor flu to get the asset protection shot.
CBS News
26-06-2025
- Business
- CBS News
Debt settlement pros and cons: Is it right for you?
We may receive commissions from some links to products on this page. Promotions are subject to availability and retailer terms. If you're drowning under the weight of your high-rate debt, debt settlement could be worth considering, but you'll want to weigh the pros and cons first. Getty Images Picture this: You're staring at a stack of credit card bills but are only able to make the minimum payments on the accounts, which barely touch the balance. As a result, you're watching the interest charges pile up faster than you can pay them down. Sound familiar? It might. Millions of people find themselves trapped in this cycle every year, and the issue is only getting worse now that the average credit card rate is sitting near a record high. When this happens and the traditional credit card repayment strategies aren't enough, debt settlement often comes up as a possible solution. Unlike debt consolidation or balance transfers, which simply help combine multiple debts into one account and interest rate, debt settlement involves negotiating with creditors to settle for less than what you owe. It's a strategy that can cut your total credit card debt significantly, but it's also one that fundamentally changes your relationship with credit and can reshape your financial future in ways you might not anticipate. So, the question isn't whether debt settlement works. It does in many cases. The real question is whether the relief it provides outweighs the long-term consequences. Below, we'll examine what you need to know to determine that. Chat with a debt relief expert about your options now. Debt settlement pros and cons: Is it right for you? Here's a look at the pros and cons of debt settlement to help you decide whether this approach makes sense in your situation. Pro: You could pay significantly less than you owe The most obvious benefit of debt settlement is the potential to pay substantially less than what you owe currently to get rid of your credit card debt. Successful settlements often reduce debt by 30% to 50%, though results vary. So, if you owe $20,000 across several credit cards, a settlement might reduce that to between $10,000 and $14,000 before fees. For someone facing serious credit card debt issues, this type of debt reduction can be life-changing. Find out how to start the debt settlement process today. Pro: It could be a smart alternative to bankruptcy For those with overwhelming amounts of credit card debt, debt settlement can be a good alternative to bankruptcy. While both options damage your credit, bankruptcy appears on your credit report for up to 10 years, compared to seven years for settled accounts. Debt settlement also allows you to maintain more control over the process, and if successful, you can resolve your debt issues without going to court, liquidating your assets or dealing with a bankruptcy trustee. For some people, that alone makes settlement worth considering. Pro: It could be a path to faster debt resolution When debt settlement works, it can resolve your debt problems much faster than making just the minimum payments on what's owed. Instead of taking decades to pay off high-rate credit card balances, the average debt settlement process is completed within two to four years. This expedited timeline can help free up cash flow for other financial goals and provide psychological relief from the burden of long-term debt. Con: It could come with credit score damage Debt settlement typically involves you stopping payments on your accounts as you save up to fund negotiated settlements, which immediately damages your credit score. Delinquent accounts can result in negative marks that drop your score by 100 points or more, and this damage can impact your ability to qualify for mortgages, car loans or even rental apartments. Settling your accounts for less than what you owe can also have an impact on your credit score, and these types of negative marks remain on your credit report for seven years from the original delinquency date. During that time, any credit you do qualify for will likely come with higher interest rates and less favorable terms. Con: There is no guarantee of success While working with an experienced debt relief expert can increase your chances of success, there is no guarantee that creditors will accept the proposed settlement offers. Some creditors, particularly those who believe you have the ability to pay, may refuse to negotiate and instead pursue collection actions or lawsuits. That's why many debt settlement companies offer their customers access to legal service providers who can help navigate these issues. Most companies charge customers an additional fee for this service, though some offer it at no additional cost. That means you could end up with damaged credit and still owe the full balance. The process can also take years to complete, during which your debt continues to grow due to interest and penalties. And if the settlement ultimately fails, you may owe more than when you started. Con: There could be tax implications and fees Forgiven debt above $600 is typically considered taxable income by the Internal Revenue Service (IRS). If you settle a $15,000 debt for $7,500, you may owe taxes on the $7,500 difference. This "phantom income" can create an unexpected tax bill, especially problematic when you're already struggling financially. Settlement companies also charge fees, which typically range from 15% to 25% of your enrolled debt. So, on a $20,000 debt load, you might pay $3,000 to $5,000 in fees, reducing the actual benefit. The bottom line Debt settlement can provide relief for those facing overwhelming debt, but it's not a decision to make lightly. The credit damage can be significant and long-lasting, and there's no guarantee the process will succeed. Before pursuing settlement, it's important to exhaust other options and speak with an expert who can help you evaluate both debt settlement and all of your alternatives. That way, you can ensure that the decision you're making is right for your unique circumstances.
Finextra
20-06-2025
- Business
- Finextra
World Bank calls for "radical" restructuring of national debt reporting in new report
The World Bank released a report outlining how countries should redefine how they disclose debt due to more complexity in the current financing environment. 0 This content has been selected, created and edited by the Finextra editorial team based upon its relevance and interest to our community. The Radical Debt Transparency report found that private placements, central bank swaps, and collaterised transactions have complicated the reporting process. As a result, while the proportion of low-income countries publishing debt data has increased from under 60% to over 75% since 2020, only 25% have reported loan-level data on newly contracted debt. The report also found that domestically-issued debt is on the rise, but disclosures are not accurate. Furthermore, countries are also using confident debt restructurings with certain creditors which withholds essential data. World Bank's senior managing director Axel van Trotsenburg stated: 'Recent cases of unreported debt have highlighted the vicious cycle that a lack of transparency can set off. When hidden debt surfaces, financing dries up and terms worsen. Countries turn to opaque, collateralized deals. Radical debt transparency, which makes timely and reliable information accessible, is fundamental to break the cycle.' The report urges debtor and creditor countries to reform their transparency practices and issue mandates to ensure transparency in loan contracts and disclosures of lending terms. The report also suggests that there should be more frequent audits and better national oversight, published debt restructuring terms, and full participation from creditors in debt reconciliation processes. The World Bank is currently working to expand their global Debtor Reporting System to ensure that quality data is being shared and utilised. Pablo Saavedra, the World Bank's vice president for prosperity, commented: 'Debt transparency is not just a technical issue—it's a strategic public policy that that builds trust, reduces borrowing costs, and attracts investment. Radical debt transparency not only supports debt sustainability but also unlocks private sector investment to drive job creation.'
Yahoo
15-06-2025
- Business
- Yahoo
MinLaw to propose laws targeting debt consultancy firms exploiting debt repayment scheme
SINGAPORE – Laws around a scheme to help individuals avoid insolvency may be tightened, with the authorities targeting firms that encourage individuals to borrow money and file for bankruptcy to get a discount off their debts. These consultancy firms are looking to abuse the Debt Repayment Scheme (DRS), a pre-bankruptcy scheme administered by the Ministry of Law (MinLaw). On June 9, MinLaw said there has been an increasing number of debtors engaging the services of consultancy firms, which encourage debtors to self-petition for bankruptcy with the objective of being placed on the DRS. 'This is done not with the intention of being adjudged a bankrupt, but with the intention of abusing the DRS to obtain a discount off their debts,' the ministry said. A debtor can avoid being made bankrupt if he is put on the DRS, but he must file for bankruptcy first before being considered for the scheme. MinLaw said that the consultancy firms are charging debtors sizeable fees and encouraging them to borrow money from creditors to pay for their services. 'Due in part to this trend, there has been an increase in the number of debtor-initiated bankruptcy applications, where debtors borrow irresponsibly to pay for such consultancy firms' services in helping them apply for bankruptcy,' MinLaw said. The Straits Times reported in March that more than half of the bankruptcy applications in 2024 were made by the debtors themselves – the fifth consecutive year since 2020 that the number of self-filed applications was higher than applications by creditors. MinLaw data showed that 2,928 bankruptcy applications were filed by debtors in 2024. That represents 59 per cent of all applications made that year. The DRS is a voluntary, debtor-driven scheme intended to help wage-earning debtors with relatively small debts avoid bankruptcy while helping creditors receive higher repayments than they would otherwise receive in the event of insolvency. Under the DRS, debtors with unsecured debts not exceeding $150,000 can enter a debt repayment plan over a fixed period of not more than five years with their creditors and avoid bankruptcy. When the debtor meets his financial obligations under the DRS, he will be released from his debts. MinLaw said it noticed an increasing number of debtors engaging the services of consultancy firms that encourage debtors to self-petition for bankruptcy with the objective of being placed on the DRS. To address the issue, the ministry is proposing a new law that will make it a crime for businesses to solicit and canvass any person to make a bankruptcy application. Regulated professionals, in particular lawyers, accountants and financial advisers, as well as charitable entities that are institutions of a public character, will be exempted. The offence will be punishable with a $10,000 fine or three years' jail, or both. The DRS was introduced in 2009 as people grappled with the 2008 financial crisis and the Great Recession, which caused many to lose their jobs and take pay cuts. It began with a debt threshold of $100,000, but this was increased to the current $150,000 in 2020 following a review in 2016. Under the scheme, debtors make repayments of their debt by following a structured repayment plan under the supervision of the Official Assignee (OA), an officer of the court appointed by the Law Minister. MinLaw said that as part of a review of the scheme, it is also looking to add two new grounds of unsuitability for the DRS. They include the failure to pay the preliminary fees and incurring of debts with no reasonable ground of expectation of being able to pay. Debtors who are referred to the OA to be assessed for their suitability for the DRS are required to pay preliminary fees totalling $600. In addition, MinLaw is also looking to add as a new ground of failure individuals who incur debts with no reasonable ground of expectation of being able to pay, and imposing a four-week time limit for creditors to file their proofs of debt under the DRS. Members of the public are invited to provide their feedback on the proposed key amendments after viewing the full consultation paper at Those who wish to submit their views and feedback may do so by June 27 at Source: The Straits Times © SPH Media Limited. Permission required for reproduction Discover how to enjoy other premium articles here
