Just walk away?

February 12, 2009 8:19 PM

What if I just stopped paying my credit cards?

I have about 12k in credit card debt. I currently have a mortgage and a car. I'm not behind on anything. My payments are made in full, plus some, every month. At this rate, I break even every month, but I have little cash on hand and no savings other than a few retirement accounts that are rapidly devaluing. My credit score is 815. It's looking likely that my job is going to be eliminated and sent to a certain third world country within the year. If I were to find a job that paid me ~70% of my current pay, I could still make my mortgage payments and car payments and insurance but there's no way to pay the cards. So what if i just don't? Is there any negotiation I can do with the credit card companies? Right now everything has been transferred off to low or no interest cards. What are my other options with this debt?

posted by anonymous to work & money (16 comments total)

Yeah, you can call the credit companies and ask them to slash the principal or lower the rates. I just saw a good article on credit card stuff on an msnbc blog....here it is! Check it out.
posted by mathowie at 8:21 PM on February 12, 2009 [2 favorites]

Do you like having a wage and assets? The credit card companies will garnishee the former and take the latter unless you keep paying them.
You can definitely cut a deal if you have to. Look yourself up a financial counsellor in your state and they'll give you advice on the best way to do it.
posted by Fiasco da Gama at 8:23 PM on February 12, 2009

Similar question from a couple of days ago: What happens if I default on unsecured debt?
posted by smackfu at 8:39 PM on February 12, 2009

That credit score is golden. I recommend doing everything within reason to keep it that way, because it's your ticket to credit if you ever have an urgent need for a loan, and also because it opens up lower cost credit to you.
posted by zippy at 8:47 PM on February 12, 2009

A credit score of 815 is really good. 12K really isn't that much debt to pay off. Can't you just get an extra job for six months or so to pay this off, and preserve your credit. It seems very worthwhile to do whatever it takes to pay that debt off.
posted by jayder at 8:49 PM on February 12, 2009 [3 favorites]

If youre willing to wait tables for four 6-8 hour shifts at a decent place then you should be able to come up with anywhere between 200-400 dollars. Thats a nice chunk of change to pay that credit card with. 12k really isnt that much. Its 1k a month for a year or 500 over two years (assuming zero interest credit card). Its not worth ruining your credit and having your wages garnished, getting sued, etc.

What skills do you have? You can do side-work in your field if you dont want to work in a restaurant.
posted by damn dirty ape at 9:06 PM on February 12, 2009

Do you like having a wage and assets? The credit card companies will garnishee the former and take the latter unless you keep paying them.

This is completely, utterly inaccurate. Credit card companies cannot "garnishee" or seize anything. They can ruin your credit score and refer you to debt collectors who will harass you a lot.

But yeah, you're better off negotiating a deal. You can get your interest rates lowered to zero or close to it.
posted by drjimmy11 at 9:18 PM on February 12, 2009

drjimmy is onto something. To answer your question directly, in real terms, credit card companies can't do much to you if you stop paying your debts. Credit scores are not such a big deal if you already have a house and debt collectors are nothing more than a nuisance. I suppose if you owed a whole bunch of money they might sue you for it.

Ultimately, only the government has power to "do" anything to you.
posted by charlesv at 9:32 PM on February 12, 2009

Credit card companies cannot "garnishee" or seize anything.

Sure they can. They just have to get judgment against you in court first. I understand that they usually don't, since this is usually cost-ineffective when compared to harassment, but it is definitely possible.
posted by grouse at 9:33 PM on February 12, 2009

Er, credit card companies can certainly garnish wages. It's just much more common to sell the dbet to a collection agency since it's easier for the credit card company.
posted by saeculorum at 9:33 PM on February 12, 2009

Right now everything has been transferred off to low or no interest cards.

Good move. Now make sure you know how long those teaser rates last. Also, don't charge anything on the ards you've transferred balances to, as often your new charges ARE charged interest or higher interest AND payments to that go before payments to the transfer. These practices will be prohibited beginning sometime next year but are still common.

While you still have that wonderful 815, I would work on a debt snowball so that you can begin paying down those cards one by one. The more you pay down, the higher your credit score will stay, and the better chance you have of still getting a new low/no card if any of your teaser rates expire.

This will also put you in a much better position if and when you lose that job.

Is there any negotiation I can do with the credit card companies?

Some of them might take you up on a partial settlement. You never know in this credit climate. Be aware that any money written off will be 1099'd to you as income.
posted by dhartung at 10:17 PM on February 12, 2009

"I'm not behind on anything. My payments are made in full, plus some, every month."

Uhm... no. You're paying your MINIMUMS each month. The 'plus some' you refer to is you slowly paying off the debt you owe. I'm amazed by how many people don't understand what credit cards are or how they work.

You have $12,000 in credit card debt because you spent 12,000 dollars that you didn't have. The credit card company more or less offered you a loan with interest and you took it. That's what using credit is. It's you, accruing debt.

The first thing you have to do is stop using credit cards completely. If you don't do that, you're just digging yourself into a deeper and deeper hole.

Don't get me wrong... I'm not against using credit cards. I have two and I use them (well, I use one. The other is just for emergencies). The catch is, I pay off 100% of the balance every month. If I'm going to make a large purchase, I save in advance and pay it off in one shot rather than buying in advance and paying it off monthly. If I can't afford it by saving in advance, then I obviously can't afford it, period. Credit card interest is a killer.
posted by 2oh1 at 10:40 PM on February 12, 2009 [6 favorites]

Some credit cards offer a sort of unemployment insurance that costs just a few cents a month, where if you lose your job you don't have to make payments until you get a new one. You should check and see if any of your cards have policies like this.

It would really be a bad idea to lose that 815 credit rating now.
posted by delmoi at 11:08 PM on February 12, 2009

A credit score has a worth attached to it to, and at 815, it is almost certain that it's worth more than $12,000 to you. You don't know what's going to happen in the future; that high credit score might allow you to eventually negotiate a lower mortgage rate that saves you $50,000 in interest. Also, you might decide to buy a new car in the future; if you qualify for a 3% loan instead of a 17% loan, you could save thousands of dollars in interest. It's quite hard to obtain a credit score like yours, and if you lose it it's much, much harder to get it back.
posted by helios at 3:05 AM on February 13, 2009 [1 favorite]

If you just stop paying, you will get sued and it will suck more than you think. If you don't plan on paying it off soon, a regular loan is a lot better than revolving credit whose interest rate could change at any time. The simplest thing to do right now is to go to your bank and figure out the best way to get a 12K loan and a regular payment plan. DO THIS WHILE YOU HAVE YOUR JOB AND YOUR 815 CREDIT SCORE. Maybe a home-equity loan is the right thing. Maybe not.

As far as people being judgmental about it, for some 12k is an outrage. For others 12k is nothing. If you can't pay it off, it's too much debt. Otherwise, it's not.
posted by originalname37 at 6:38 AM on February 13, 2009 [1 favorite]

Double agreeing that just walking away will cause you all manner of trouble that's just not worth the $12 grand. I've got a similar situation, and it's manageable. Walking away is, quite literally, financial suicide. You can count on the fact that you will not be able to get credit for years to come, and if you ever do, it will be at ridiculous rates. If you just can't manage the payments and there are no other options, bankruptcy is better than just walking away. It shows that you at least have some responsibility.

For the anti-debt people, I agree. It's best to not spend what you don't have. But it's not the worst thing in the world either. Credit is a tool. And like so many other tools, it can be abused or it can be used effectively. Suze Orman had some pretty good advice a few years ago that I took to heart. So, you are a responsible young adult, just graduating from college and starting off in your career. Oftentimes, for the first few years of ones working life, there just plain are more expenses than a starting salary can provide. You might need a reliable car, you might need a decent wardrobe, etc. Completely eschewing credit, or holding out for jobs that pay more, *could* be worse in the long run than running up a few thousand on the credit card. Even if you live an austere lifestyle and track every penny, there may be $500 or $1000 a year of stuff you NEED, or risk losing your job. So, you run up the card to $5000 over the course of 5-7 years. Yes, it costs a lot of money to maintain a balance. But it would cost you far more if you lost a job- it's an investment in getting a good career going. After a few years, your pay will (hopefully) go up, and you can knock that balance back down pretty quickly. In the end, you develop a good credit history. The trick is to make absolutely sure you only spend $$$ you absolutely have to.

Yeah, there's a lot of bullshit on my card that I didn't need to buy. But I did buy it with the knowledge that it will cost me. It was worth it, to me. It was worth it, for example, to go into a few hundred dollars debt to make the trip to see my sister's graduation and buy a nice dinner for us. I can take the $10 a month that costs me. And it was worth it to me to buy my home, knowing that I'd be living like a monk for a few years and possibly adding onto my debt load, because after a few years, the money I saved in purchasing a home versus being stuck with ever-rising rent far outweighed the monthly juice on the credit card.

So, for your situation. Try:

- Line up a part time job of some kind.
- Cut out the cable and get Netflix.
- Use the Netflix instead of going to movies.
- Home cook every meal you possibly can.
- Quit smoking/drinking/etc.
- Conserve electricity. (For me, the difference between conserving and freewheeling is $50 a month...)
- Conserve energy. Figure out if its cheaper to let the heat run at normal temperatures, or if it's better to run it at the lowest possible setting, and just use electric space heaters for the room(s) you're in at the time. Same for the AC- even if you have central air, maybe it's cheaper to just get a window unit for the bedroom and run that for a few hours at bedtime.
- Knock the cell phone down to the bare minimum; or increase it $10 a month, and kill the $50 a month landline.
- Etc.

Do these things now, so that if you do end up losing work, you'll have had a head start. This is a thought experiment I've done for myself- if I lost my job today, I could kill all my unnecessary costs today, and there'd still be a month or two before the savings kicked in. I could meet my minimums on unemployment, but not my current bills. So I've tried to cut my current bills down to the point at which I could survive (longer) on unemployment.
posted by gjc at 7:21 AM on February 13, 2009