How Obama is Making Credit Card Debt Settlements Financially Advantageous

The Report on "The Next Phase of Government Financial Stabilization and Rehabilitation Policies" released in September 2009 says that the Obama Administration sought to restart key non-bank channels of credit intermediation. It further states that these sources had been shut down when the crisis took place. What are these non bank channels? It is not difficult to understand these non bank channels include credit cards and other financial tools and instruments.

The intervention by the Obama administration came in the form of a stimulus package to help credit card issuers avoid bankruptcy. They were placed in a piquant situation because more than six thousand individuals and businesses were declaring bankruptcy on a daily basis. This meant that the borrowers were approaching the courts and stating that there they were not in a position to repay their debts and sought legal protection. Liquidation of the assets and settlement of the dues to various creditors including the credit card issuers never takes place quickly after a bankruptcy. In such a scenario, issuers needed help and the Obama administration stepped in with the stimulus package.

What the package has done is that it has provided additional incentive for card issuers to get rid of all the bad debts on their balance sheet. Rather than approaching the borrowers for payment and pushing them towards bankruptcy, lenders are approaching them with settlement offers. Lenders stand to gain by doing so because they are recovering cash that otherwise would have been lost to bankruptcy. Borrowers stand to gain because they are enjoying a reduction in the principal amount owed. The government is benefiting because of the reduction in the bankruptcies and the improvement in the condition of credit card issuers.

Further, only half the stimulus money has been pumped into the market yet. The other half is yet to be introduced. When this half was introduced, there is no doubt that the economy will witness a spurt in demand for goods and services. The credit card issuers of settlements because they want to be in a position to offer loans to needy persons when the boom takes place.

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