A California resident who is struggling with debt might want to consider several options before filing for bankruptcy. In some cases, it's possible to negotiate a payment plan with creditors. A debtor could also consider credit counseling. Some credit counseling services might be able to negotiate with creditors and get them to agree to lower payments. Of course, dipping into savings is another way to eliminate debts.
Many California residents struggle with debt for some years before it becomes too burdensome or simply impossible to continue on any longer. The reluctance to seek help is often the result of a perceived stigma of acquiring debt that is unmanageable, yet unforeseen circumstances, such as an emergency medical necessity, are in many cases the underlying cause. There are many reasons why bankruptcy is beneficial to permit a debtor to have a fresh start. An important first step is to determine if the debts are such that can be relieved through bankruptcy and which form may be appropriate.
High living expenses in California coupled with a crisis like a job loss or serious health problems sometimes send people into bankruptcy. Although bankruptcy is meant to give people a fresh financial start, the law generally recognizes that people might need to file for protection more than once. Debtors must observe waiting periods before filing again, and the type of their original bankruptcy action influences how long they must wait.
Many California residents struggle to pay their bills, especially if they are hit with an insurmountable sum of medical debt. In many cases, the people for whom medical bills loom large are those least able to handle the financial burden, including the poor and the elderly. Middle-class families may also struggle to make ends meet if their health insurance fails to cover significant medical bills. Patients may not think of medical debt as similar to credit card bills, but it can have a significant impact on a person's credit record and debt collectors can purchase the obligation. As a result, vulnerable people may be facing ongoing collection calls demanding payment for these expenses.
Over the years, many people in California have sought consumer bankruptcy protection when their debts get out of control. According to a report from Supreme Court Chief Justice John Roberts, over 770,000 bankruptcy cases were filed in fiscal year 2018, but this represented a reduction by more than half compared to filings in 2010. Bankruptcy experts attribute the decline to many factors, such as an improving economy, more access to healthcare and the pressure that student loans place on younger people.
Emergencies sometimes force people in California to use their credit cards. Reliance on credit cards has resulted in American households owing an average credit card balance of $8,195. A person with roughly $8,000 in credit card debt who only makes the minimum monthly payments would need about 23 years to pay off everything at an average interest rate of 17.41 percent.
As of late 2018, Americans had a total of $3.93 trillion in consumer debt when not accounting for mortgages. California residents and other Americans are expected to add another 5 percent in credit card balances throughout the rest of the year. Therefore, it is believed that consumer debts will eventually hit $4 trillion in the near future. While it only took five years to go from $3 trillion in debt to $4 trillion, it may not be cause for alarm.
Debt has become a way of life for many in California and across the country. At best it's utilized with a big-picture plan in place consistent with using only as needed, resources to enable an ultimate pay off and not letting debt service overtake the budget. More problematic is when carrying credit debt is not optional, and it's a sign of crisis when only the minimum payments are made each month. If that's the case, it may be time to consider negotiating a debt-forgiveness plan.
Women in California might be in greater danger of falling into debt than men. According to data from Comet Financial, the economic disparity between men and women is not just about wages. Women have more debt than men do as well, and that wage gap may be one significant reason this is the case. On average, women have more than $6,000 in student loan debt compared to men and more than $1,000 in credit card debt and medical debt.
California residents may choose to get rid of their credit cards after paying down an existing debt balance. However, that may not be a wise choice. By getting rid of a credit card, holders may harm their credit score. This is because they will now have less credit to use and may also reduce their credit mix. These are both key factors when calculating a credit score.