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My sister in law, who was making about $40,000 a year, declared Chapter 7 Bankruptcy and discharged $187,000 in debt. ($125,000 of it was on over ten credit cards). It got me thinking about how can a person who only makes $40K a year get access to so much credit when she does not own a house and has no husband for a second income, etc. So I researched on the Internet stories of other people who got into massive debt on their credit cards. This story about some who declared bankruptcy with $175,000 in credit card debt caught my eye:
To me, that is massive! I have a friend who owes 15K in CC debt, gets $1,100 per month, disability. He kept getting these offers in the mail, took advantage of every one of them, all low
credit lines 1K or less, so he has been paying the min for years, robs Peter to pay Paul. Long story
short, the rubber band has broke, he will be filing Chapter 7.
This was pretty common when the issuers were handing out credit cards like candy. I don't think it happens as much now, in this era of credit line decreases and closures. Creditors now shut them off, before it gets that far out of hand.
My co-worker had a friend who made $100k/yr and was self-employed with no health insurance. Health insurance is very expensive and his income was too high for government health care.
He was the bread winner and his wife did not work. When his wife got breast cancer, he was racked up the charges on his credit cards to pay for treatments. While she beat the cancer, there was no way that he would able to pay off the credit card debt. He filed for bankruptcy.
My co-worker had a friend who made $100k/yr and was self-employed with no health insurance. Health insurance is very expensive and his income was too high for government health care.
He was the bread winner and his wife did not work. When his wife got breast cancer, he was racked up the charges on his credit cards to pay for treatments. While she beat the cancer, there was no way that he would able to pay off the credit card debt. He filed for bankruptcy.
Thing is for the disciplined person there is a benefit to having very high credit lines as it lowers utilization rate. Most card companies are only focused on what that number is and by how much new credit you have taken on or might be taken on based on the timing of your most recently opened lines and by what hard credit inquiries you are getting. If one times them out and opens a new line about every 4 months and doesn't increase that utilization % then the companies are going to keep on offering credit.
So lets say right now you have $10k in credit lines and you have $3k in balances. Remember balances include amounts you might be paying at the end of the month in full. If you ask for a card you might get another $5k in credit, so as long as you add only $1,500 on that card your profile looks fairly similar. If you do this 3 times a year for 3 years, you could have $55k in credit and about $16,500 in balances. And guess what, your credit score would only go down modestly as long as you didn't make any late payments in the 3 years. If you had some late payments or collections in the past fall off your score might even go up. As someone's score gets to 700 or higher, its quite easy to move this up to 2 or 3 cards every three months. Seems ridiculous, but credit issuers just rarely say no especially if you are willing to call them up to discuss why you want their card.
I don't suggest doing anything like this, but it is a big part of what a reputable credit advisor would suggest to boost scores. Most people would agree this is kind of nonsense, but its all a legal and fair way to play the credit game. For someone with scores in the low 600s its often best to sign up for a card every 3-4 months and then just never use it or even never activate the card. Within 2 years of timely payments on the accounts they do use they almost are certain to get up to or very close to a 700.
1%-20% credit utilization is ideal. 0% and above 20% is a negative.
Its all relative. I saw a case where it was 70% utilization and still getting plenty of offers of new accounts. My partner worked with her and got it down to 25% over 18 months and the score went from 605 to 703 and I am pretty sure she's at her goal of 750 by now. Almost everything was done through opening new accounts and using balance transfers to get her to put more towards reducing balances. Over the 18 months she probably only reduced her balance due by 20%, but just playing the game right makes all the difference.
Someone who racks up $150,000 balances on almost any income is playing a different game.
Just a little different slant on CC debt. Things may have changed so I don't know if you can still get by with this.
My friend had terminal cancer with only a short time left. She recieved the usual "Get our card" now. It mentioned that in case of death, the balance was covered by CC insurance. Her husband got on the Internet and found 8 other cards with some kind of death coverage. They charged everything, gas, groceries, doctor bills, medicine, She died a few months later and nearly 30,000 in bills were covered.
I know, it doesn't seem just right, but under the circumstances, ??????
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