Banks Continue to Tighten Credit Standards

Adjust text size

Article Tools

email this article

 Print This Post

add bookmark

digg this

reddit

save to del.icio.us

The New York Times recently reported on the results of the quarterly Federal Reserve bank study that takes a look at current lending practices.

“Besides the nearly 60 percent of banks tightening standards on credit card debt, 65 percent said they had tightened lending standards for other types of consumer loans over the last three months.

About 20 percent of the domestic banks reported cutting limits for existing credit card accounts held by prime, or strong credit, customers. Credit card lenders have been reducing customers’ credit lines, raising interest rates or even closing accounts as they tighten the reins to reduce their risk.”

This is not good news for those consumers looking for options to reduce or eliminate their consumer debt through a debt consolidation loan.

Essentially, banks are reducing the amounts their best customers can borrow on existing accounts and making it more difficult for new customers to qualify for new credit. If you were planning on obtaining a new credit card with a lower interest rate to do a balance transfer, you may have a difficult time. This also goes for unsecured personal loans or secured home equity lines of credit.

Other Options

The first option is to change your lifestyle by cutting spending and using the savings to aggressively pay down your debt. For some, the minimum payments on the debt have become too cumbersome that even a reduction in spending will still leave them unable to meet their obligations each month without relying on additional credit.

If you are comfortable with your current minimum monthly payments, have no need for new credit, and simply want help negotiating more favorable terms on your existing debt to get it paid off in 5-7 years, working with a consumer credit counseling service (CCCS) may be an option worth exploring. Your payment will most likely stay about the same, however, the counseling service will work to negotiate lower rates and fees to ensure you are able to pay the debt off more quickly.

If the monthly payment is becoming difficult to handle or you’ve already fallen behind, you should research debt settlement as an option to eliminate your debt. The goal with debt settlement is to negotiate with your creditors to accept a lump sum payment in an amount less than the full balance owed.

If you determine that consumer credit counseling and debt settlement are not a good solution to your debt problem, typically the last option to explore is bankruptcy. You will need to speak with an experienced bankruptcy attorney to determine which type of personal bankruptcy would be appropriate in your situation and what impact it would have on the repayment of your existing debts.

The inability to consolidate your debt may be an obstacle, however, it will force you to explore other solutions that will help to eliminate the debt versus simply shifting the balance to another company.

About the Author:
Chris Rocks is the Founder and Executive Director of the Credit Advisory Alliance (CAA), a membership based organization helping those who have suffered a financial crisis restore their credit and reinsert themselves back into the credit-driven economy. Prior to founding CAA, Chris had successfully helped consumers achieve their financial goals as both a Financial Advisor and the Vice President of a Mortgage Origination Firm.

Post written by Chris Rocks

Leave a Reply