Many Michigan residents fall into inescapable debt when they use their credit cards to cover basic expenses after suffering a financial setback. According to the U.S. Federal Reserve, revolving debt in the United States increased by 1.5 percent to $1.037 trillion in July despite a thriving economy and historically low unemployment figures. Consumers sometimes take out payday loans or let their credit card accounts fall into arrears when money is tight, but experts warn that doing so can have dire financial consequences.
Payday loan centers offer short-term financing at high rates of interest, but only about 20 percent of the loans they make are paid as agreed according to the Consumer Financial Protection Bureau. The agency says that the vast majority of payday loans are rolled over into new loans within 14 days, which can result in larger and larger amounts of money being financed at interest rates of up to 400 percent.
Failing to make even minimum monthly payments on credit card accounts can also be a costly mistake. While the Credit Card Accountability Responsibility and Disclosure Act, which was signed into law by President Obama in 2009, placed limits on the type of penalties lenders can impose on delinquent accounts, banks can still charge interest rates of up to 29.99 percent when monthly payments are not received in a timely manner. When accounts fall 60 days past due, lenders can apply these higher rates to the entire balance.
The nation's bankruptcy laws were drafted to provide Americans with an escape from crushing debt, but many consumers believe that they were designed to punish poor decisions. Attorneys with experience in this area may help dispel this misunderstanding and the many other myths surrounding debt relief, and they might also explain how filing a bankruptcy petition puts an end to daily harassment from bill collectors.