Tuesday, November 11, 2008

My Proposal for Credit Card Debt Relief

I want to share this document with as many people as possible. I believe that it is a reasonable and doable plan that will help a great many people.


Basic Idea: Let the government pay off peoples’ credit card balances. People will pay back the government.

1. This program could be administered by the IRS, which is already set up to receive payments, make payments, and even negotiate payments; so instead of using “them” or “the government,” I will use “the IRS” in reference to the government-managed arm of this program.

2. First, the IRS would negotiate a repayment amount with the credit card companies. Ideally the amount to be repaid would be the principal amount (what each person actually spent on an item) and a reasonable percentage (like 5%) of the principal. No fees, finance charges, or other credit card charges would be included.

3. People who wanted to participate in this payback program would have a window of time (i.e., 6 months) to sign up. The sign-up process would involve several steps:
People would have to document all their credit card accounts and the amounts owed.
The sign-up process would take place with a certified financial planner/debt management counselor who would help each person set up a realistic budget that did not include using any credit cards and who would also help set up a repayment plan based on that person’s income and expenses.
Each person who signs up for this program would have to agree not to use or open any credit card accounts during the repayment period. This would help individuals to get used to a realistic spending pattern. Financial counseling would be available to participants during the repayment period. It could be provided by the IRS or by the person/company who initially provided the sign-up counseling session.
This program would be open to any tax-payer, or the dependents of any tax-payer in the United States.

4. Once the sign-up process had been completed, the IRS would issue payments to the participant’s credit card companies and the credit card accounts would be closed. Each participant would pay an agreed upon monthly amount to the IRS to repay the total loan from the IRS. There would be no interest on this loan, but there could be a small monthly fee to cover the cost of running this program. The amount of this IRS loan payment would be re-evaluated yearly to reflect any changes in the income of the participant. Since the loan is being handled by the IRS, it would be difficult for anyone to default on it, since the IRS does have recourse when people don’t pay what they should.
People’s Bailout – Page 2

5. The IRS would have to set up people/departments to:
Handle negotiations with and payments to the credit card companies. This department would be short-lived, because once the payments were made, their function would end.
Design and implement the sign-up process. This would include some sort of certification for those people/groups/companies that would do the actual sign-up and counseling to ensure that participants were getting uniform and correct information and to ensure that the information needed by the IRS to implement payments was submitted in a correct, complete, and standard format.
Manage the repayment program. The participants would need to receive information regarding their accounts: what the credit card repayment amount was, what amount the participant had to repay to the IRS, what the monthly breakdown of payments would be, what the monthly IRS fee would be.
Receive payments from participants and keep their account information current.
Be available to answer participant’s questions and provide counseling resource information.

It did occur to me that the credit card companies might not like this plan. After all, they have been making money from the accrued interest, fees, and charges on their credit cards. They will lose much of that income once this program goes into effect. An important point to remember, however, is that this program is voluntary. People who aren’t burdened with credit card debt or people who don’t want to give up their credit cards do not have to participate in this program.

Counseling and support groups are essential because I am proposing what for many people will be a drastic change in both the way they handle their finances and in their lifestyle. Impulse or status purchases will be severely curtailed. I am asking people to return to a basically cash-only economy.

With a dwindling demand for non-essential goods, perhaps our trade deficit will also dwindle.

I would like to start a grassroots movement to have this plan put into action. I would like people to share this document with their elected officials, friends, and family.