The following essay is Maura Penna’s idea for a new debt relief program to help consumers who are behind on their credit card payments. Maura is a college student participating in the Golden Financial Services scholarship program for 2020.

To apply for a scholarship, students must come up with a new debt relief program to help consumers who are behind on their credit card payments.  Without further ado, here is Maura’s idea!

(To vote, simply click on the “thumbs up” on the voting page here)

Delinquent Credit Card Dept

One of the most common problems younger and older adults seem to have is the accumulation of credit card debit. It is a scary reality that can have most working adults in a strangle hold. I can even say this I have fallen victim to acquiring debt myself, but with adapting more strict spending habits and working to slowly pay all of them down over time, I was debt free in 2 years. Over time small, little bills can pill on each other, so the important thing is to pay as much as one can in cash or debit, and not resorting to credit. When the cash is not tangible and we spend on the idea of paying it back later, it really generates a slippery slope quickly.

Lots of us have car loans, student loans, mortgages, and credit card debit. Although credit card debit is the lowest amount of the dept just recently reaching the $1 trillion mark. (Fay), it is the most quickly acquired debt and we use our cards daily, while the other loans are a one-time large debt that usually end up paying off later, such as a mortgage and a student loan; both have lower interest rates, depending on your credit. Since we use our cards for most transactions because who really carries cash anymore, the costs stack up extremely fast. By the end of the month when you get a statement, it is easy to get a bit lightheaded at what you need to pay back. This is a very real struggle for many adults; leading them to fall behind on payments or paying the bare minimum. Paying the bare minimum is the only choice for lots of consumers as they live paycheck to paycheck. With real estate prices rising, and with the cost of consumer goods increasing, both joint with the lack of increase in the minimum wage, results in this trend not going away but only become more problematic if the consumers do not address it as well at the credit card companies themselves.

Solutions to this is problem is complex, however a few practical options have been presented in the past couple of decades, but they are not a one size fits all solution. The way my solution would work is the credit card company would establish an “Independent Relief Program”- this would increase, those who opt in for the program,   their interest rate by 5% on top of what they already pay (which would go directly to paying their overall balance off every few months until their debt is at $0) and lower their credit line by 15% (of their original line of credit) every month until their debit is at $0. It is like a vanishing debt. The increase of the interest rate would act like using more credit to pay off credit over time. Let us play it out.

John has a credit limit on his Visa on $6,000 with an interest rate of 3%. John lives in San Fransisco but has currently lost his job due to Covid-19, and his unemployment & stimulus were not enough to keep up his San Francisco way of life, so he resorted to putting his daily expenses on his credit cards until he goes back to work to pay it off. John, nor anyone else, truly know when our society and economy will go back to the way it was, so he cannot continue to spend as if it will be back to “normal.”

If over the 3 months John has been almost reaching the maximum every month of $6,000, and is only paying off $2,000 every month, with a $4,00 balance left on his card each month, and his payments are starting to get less as the time goes on. If John were to opt in to the “Independent Relief Program” until his debt was gone , it would lower his line of credit to $5,100 for the first month, $4,200, for the next, $3,300, and so forth, combined with the extra 5% interest rate he has been paying ( plus the monthly payment of $2,000) would pay off his debt faster. Once he got it back to a $0 balance, then the program would expire, and he would be able to have the credit limit of $6,000 again at his old interest rate of 3%.

The idea behind this program is to not increase his month payments significantly but rather setting up additional small payments in the form of an “interest rates” over longer period of time in conjunction with progressively lowering lines of credit until a $0 balance is achieved, so he can pay off his debt without digging himself into a deeper and deeper hole.

Work Cited:

Fay, Bill. Key Figures Behind America’s Consumer Debt

https://www.debt.org/faqs/americans-in-debt/

Maura Penna

Golden Financial Service Scholarship

5/20/2020

Biography

I was born in Chicago and grew up in a small town in Indiana. I went to Catholic schools for 12 years until college. When I was 21 years old I took a Grey Hound bus to work on a dude ranch on the Flathead Lake in Montana. I lived and worked in Montana for a few years until I made the move to South Lake Tahoe, Ca. This is where I met my husband Skylr 7 years ago, as a ski patroller at Hevenly Mountain. We have two young boys and now live in rural Nevada. We started investing into multi-family homes a few years ago and are always actively looking for a worthwhile investment deal in real estate. I’m currently in Nursing school, working from home, and taking care of the properties and family while my husband leaves on his wild land firefighting duties. Both pf our parents are no longer alive, so we take on a lot of tasks independently without help from family. This is an important reason I investigate scholarships and alternative ways to help pay for college and childcare