What should I do about my credit card debt?
December 28, 2004 3:39 PM   Subscribe

Four credit cards. Two owned by the same company. Total debt about 70,000. No mortgage. No student loans. No job. No car. No kids. No rent for the next few months. I I could work for seven+ years to pay it off. I could quit paying. Interest is more than $300 a month. I have been paying one card with another for a year or two when I was out of work. Bankruptcy isn't something I wanted. Interest rates going up. My question is 'what happens'? Collections, harassment, embarrassment, garnishment? What's that like? Is that a fair price to pay for a fresh start? I get lost wanting to understand the spiritual significance of fractional reserve lending systems. If you have any perspective/experience on what its like to quit paying, this would help me see more clearly what I think I'm headed for. I guess my big concerns are collections people. How long does it take before my bank account gets seized? Can I still use it? Will they call my parents? Call me at work? Visit me? My bills go to a pobox and I my phone is a voicemail box. I just thought I could do something better with my life than give up another eight years to this. Don't ask where the money went. It's all been used wisely and judiciously.
posted by anonymous to Work & Money (31 answers total) 1 user marked this as a favorite
 
Consider consulting a lawyer about bankruptcy option.
posted by monju_bosatsu at 3:48 PM on December 28, 2004


To be blunt:

You borrowed the money. It's your responsibility to pay it back.

Seriously. Talk to a credit counsellor, amalgamate your debt, and keep paying.
posted by dirtynumbangelboy at 3:49 PM on December 28, 2004


Small piece of anecdotal evidence. If your debts become turned over to a collections agency, they are very very persistent in trying to track you down. At the library I work in, we get calls from creditors who want us to do queries in our reverse directories [you can do this online now but it used to be that for some reason only libraries seemed to have them] so that if they couldn't get you on the phone -- and I know you have a voicemail box, but I'm just demonstrating pitbull attitudes -- they would ask for your neighbors' phone numbers and call them up and harass them to try to get in touch with you. It's not pleasant. If you shared a phone in a housing situation under your own name, they would hassle your roomates. If you just "quit paying" you could expect to have a very hard time ever -- or in the not-just-near future at the very least -- buying a house, renting an apartment, getting a car loan, getting another credit card, getting a student loan, getting a telephone or many other consumer items IN YOUR OWN NAME. This will also affect any future partner, should you decide to marry. This is all in the US, by the way. Bankruptcy laws vary, but I know that in Texas, they can't take your house if you declare bankruptcy, nor force you to move.

It's a real shitstorm unless you're really prepared to go underground or set up a new identity. On the other hand, there are a wealth of consumer credit counseling agencies who are good at consolidating credit obligations and sometimes getting credit companies to accept cents on the dollar in payback without having to go through formal bankruptcy proceedings. They might also be worth looking in to. It doesn't matter where the money went, it just matters that it wasn't yours, and now it's supposed to be paid back. There are above ground and underground ways of dealing with this situation, but the one option you seem not to have is to keep doing what you're doing.
posted by jessamyn at 4:03 PM on December 28, 2004


As I understand the credit system, the collections people are a short term issue. The real issue is that if you stop paying, or go into bankruptcy, etc, this will appear on your credit history for a very long time. Do you ever want a mortgage? Do you ever want a car (purchased in a way other than paying cash)? You may have trouble renting, because most rental agencies (at least where I am) start off their inquiries with a credit check. If you screw up badly enough, it will be difficult for you even to get a cellphone.

I agree with what dirtynumbangelboy said, and not only that, so will most people who have cause to look at your credit record.

To answer your question about what they have on you - if you haven't gotten a credit check you should, because most of it will be there. However, I think in this day and age it would be very optimistic to think that if someone was determined enough, they couldn't find where you work and live.

You also may want to read some first-hand tales of going through this kind of process (or any debt recovery process). One place this can be done is on the motley fool forums - I'm not a member anymore so I can't find specific things to look up, but you can become a trial member for a month. They would also be able to answer this question in great detail (though they would say effectively what dnab said above, I think).
posted by advil at 4:03 PM on December 28, 2004


To avoid (hopefully) going over old territory again:

A December 2004 question on improving a bad credit history (including tangents about credit counseling agencies)

A November 2004 question on "How should I repair my bad credit?"

A December 2003 question about how to deal with a large amount of school loans.
posted by WestCoaster at 4:09 PM on December 28, 2004


i third the credit counseling route...me and the misses were approx. 20k in the credit hole. we went to CCCS they negotiated most of our interest down to between 9 and 0%, and we had it payed off in 5 years. best. thing. ever.
posted by ShawnString at 4:12 PM on December 28, 2004


In my early 20s I racked up some stupid debt with the help of my first significant relationship. In the end I was left holding the bag for $22k in consumer debt while my significant other walked away with most of the goods and no debt.

After much consulting with family, friends and a financially wise coworker, I decided to file for bankruptcy. If I had it to do all over again I'm not sure that I would, but I was 25, living in Chicago, making $20k and helping to support a mother who was not working. It seemed like the best option at the time.

I shied away from credit cards for a couple years, but realized that I needed to start rebuilding my credit a few years later. I bought a car at a high interest rate (25.9% - ouch!) and paid it off ASAP. I got credit card with a low limit and used it once a month for something that I needed anyway and paid that off.

9+ years later, I still have that mark on my credit score for another few months, but my score is good enough that I qualified for a joint home loan 4+ years ago, bought a new Honda with their best interest rate a year ago and generally have no worries. The trick here is to be active in your pursuit of a good credit rating after filing. At some point you will want financing for something or need to have your credit reviewed in order to obtain something. Don't assume that you'll get through life without needing a clean credit report.

Having said all of that, it is a stigma, even today. It can impact your ability to get a job, a place to live (even rentals) possible romantic partners frown upon it, and in the short term it will seriously impact your ability to get financing for anything.

My advice? See a credit counselor (and follow through with payment plans) or file for bankruptcy. Do not just stop paying. That will haunt you much longer than a bankruptcy.
posted by FlamingBore at 4:18 PM on December 28, 2004


Assuming you're in the United States, the FTC has a useful page of advice on debt collectors and the law. It's well worth a read.
posted by Zonker at 4:19 PM on December 28, 2004


Just to clarify my earlier statement:

Yes, I know some people get in over their heads, and are unable to pay. My bluntness stemmed from the decision to simply stop paying. This is also known as theft.
posted by dirtynumbangelboy at 4:30 PM on December 28, 2004


There are other options besides bankruptcy and credit counseling. First of all, credit counseling agencies are often creatures of the credit industry or heavily skewed towards ensuring that pay back every dollar you owe, regardless of the fully legal alternatives at your disposal. Also, having a credit counseling agency negotiate on your behalf is a huge hit to your credit anyway. In Canada, however, there is something called a consumer proposal, which is like a bankruptcy but is not a bankruptcy (it does not legally have to be declared if asked by employers, it gets wiped from the books completely and so on). This would allow you (through a trustee) to file a "proposal" to your creditors, usually of 30 cents on the dollar or so basically in exchange for not declaring bankruptcy and putting them through that hassle. It means you pay, over a number of years, regular monthly payments to your trustee who then disburses it to the creditors. No interest accrues. It does mean that your credit rating takes a huge hit, but not as bad as bankruptcy , and in many ways better than defaulting on payments. Again, this mostly relates to Canada, but I'm certain there are other options in the US that do not involve either bankruptcy or simple consolidation. Talk to a bankruptcy trustee, they and only they can give your the best advice. Forget about "living up to obligations". Take advantage of every legal means available to you to do right by you and your family. Think about it this way - through a bankruptcy or consumer proposal, you'd likely end up paying less than $20,000 back to your creditors. Is $50,000 over the next few years worth a bad credit rating for 7 or so? A trustee will be able to answer all of your questions about the process, but there will never be any collections calls, garnishing or seized bank accounts going the bankruptcy route. Email me if you are in Canada, I can supply you with more information.
posted by loquax at 4:37 PM on December 28, 2004 [1 favorite]


anonymous, you got some great advice already - and here's one more data point for you.

have you considered why you got into debt in the first place? to that extent of debt?

you may want to join a support group like Debtors Anonymous.

I have no direct experience with the organization. I know it exists, because I heard about them in a documentary on PBS. The organization is modelled after Alcoholics Anonymous.

There are mechanical ways to repay your debts - see advice above. But if you wish to change the beliefs and habits that led you to this situation, you may want some support from an organization like DA
posted by seawallrunner at 4:53 PM on December 28, 2004


Bad credit is not the end of the world. You can still get auto or home loans, although you'll pay more -- these are very low risk loans for lenders, as they are secured by the item you're purchasing. You can get a secured credit card to start building up your credit score again. You may have to put down a larger deposit for an apartment and/or utilities (cell phone companies are, for some reason, real rectums). You will have to delay gratification for most other major purchases since you'll have to save up for them, instead of buying them on credit.

Lenders MAY NOT, under the law, harass anyone but the debtor. Not your neighbors, not your roommates, nobody. If they do so, you should report them to the FTC. Unsecured lenders (i.e. credit cards and "signature loans") cannot seize your assets. In fact, they have almost no leverage to force you to pay without first taking you to court and getting a judgment against you, and this is costly enough that they would prefer any number of other outcomes. This is why they are such dicks: they want to bully you into paying, and paying them first. If you don't pay a judgment, then they can petition the court to garnish your wages. But the court may not allow this if you are in a bad financial sittuation (i.e. unemployed).

In any case, in just seven years, all the bad stuff goes away (except for bankruptcy, which stays on your report for 10 years). So it'll be inconvenient for a while, but hardly crippling.

I went with a credit counselor and paid off my $50,000 in debt over a period of about four years. It's been about three years since I'm finished. I was able to get a car loan for 9% pretty much right after I finished, and I am getting good credit card offers now, a couple years later. (When I send the offers in, they often decide they don't want me... but I was able to buy my new G5 without paying interest on it.)
posted by kindall at 5:06 PM on December 28, 2004


I cannot imagine running up such incredible debt (with the exception of student loans). I had a difficult time paying off about $3000 borrowed when I was unemployed for about a year, but was able to make it once I found another job.

But who am I to cast stones?

At the risk of derailing the thread: What is it about credit card companies that allow this to happen? Is this culture of debt solely an aspect of the United States, or are citizens of other countries similarly in the hole?

Perhaps it's just the FDR style Democrat in me, but this seems to be an issue that's crying out for a government program. Individuals simply shouldn't be able to run up that kind of debt without being able to pay for it. It is, in short, unethical for credit companies to keep extending credit to chronic spenders who have - as I see it at least - a problem akin to a gambling addiction.
posted by aladfar at 5:16 PM on December 28, 2004


bankruptcy. there's no shame or sin in it.
posted by amberglow at 5:42 PM on December 28, 2004


At the risk of derailing the thread: What is it about credit card companies that allow this to happen?

Not sure where I read this, but some credit card company exec was quoted saying they don't consider a debt critical until it's three times the borrower's annual income.
posted by soviet sleepover at 5:47 PM on December 28, 2004


Perhaps it's just the FDR style Democrat in me, but this seems to be an issue that's crying out for a government program. Individuals simply shouldn't be able to run up that kind of debt without being able to pay for it.

The government's got to stop spending in just this way before it gives its citizens a do-as-I-say-not-as-I-do lecture about wise use of credit.
posted by oaf at 5:50 PM on December 28, 2004


It sounds like bankruptcy would be your best option (chapter 7, whichever one clears your debts instead of restructures). By the time I was 23, I had 22,000 in credit card debt was underemployed/unemployed, and most everything I had bought with that had either been stolen, or was sold to try to pay credit card bills.

Bankruptcy solved that problem for me, and I've still been able to find apartments. The biggest drawback is that I really can't do things on a whim, but I probably shouldn't anyways.
posted by drezdn at 5:51 PM on December 28, 2004


I hate to see bankruptcy recommended casually. It's not a get-outta-jail-free card -- we all end up paying the bills through higher interest rates, less-favorable loan terms, and product pricing. Granted, sometimes it's the only way. But it's not innocuous and it does, indirectly, cause others to pick up the tab.
posted by Miko at 6:13 PM on December 28, 2004


I have been paying one card with another...
... It's all been used wisely and judiciously.

what seawallrunner said.
posted by quonsar at 6:20 PM on December 28, 2004


There's a lot of good information here, but take some of it with a grain of salt. Kindall basically nailed what I was going to say.

While buying a house is more difficult, and you will pay more (in a couple of ways) you can get a mortgage with bad credit or bankruptcy. I've known people who did both.

And as said before marks can only be on your credit report for 7 years after your last payment, except for bankruptcy which is 10.
posted by justgary at 7:15 PM on December 28, 2004


Perhaps it's just the FDR style Democrat in me, but this seems to be an issue that's crying out for a government program.

Bankruptcy IS a government program, to a large degree...isn't it?
posted by davidmsc at 7:21 PM on December 28, 2004


You borrowed the money. It's your responsibility to pay it back.

Remember, the credit card companies that loaned you this money will do everything they can within the law to look out for their own self-interest. You should do the same.

Bankruptcy laws are there for a reason. Society is better off when people with extreme amounts of debt are able to get a fresh start legally than when their only way to escape the situation is basically to become criminals.

Yes, the credit card companies lose in that situation. However, they were perfectly aware of the risk they were taking by loaning you that amount of money. Extending more and more credit to someone already tens of thousands of dollars in debt is a pretty risky proposition. Frequently they're going to lose out on that deal, and they know it and factor it in as a cost of doing business. They make so much on the interest that they can afford to lose a lot of times.

From the tone of your post, it seems like you really feel you need to get out of this situation, but you're just not comfortable with the concept of bankruptcy. It's not "something you wanted", but neither is the current situation, and just stopping paying would be a lot worse. To my understanding, they will basically get court judgments against you, and then the police will get involved in confiscating any property you still own and garnishing your wages.

If the interest is really only about $300 on $70,000, that's only about a 5% interest rate. Not sure if credit counseling can improve on that; maybe it can.
posted by mcguirk at 8:34 PM on December 28, 2004 [1 favorite]


Counsumer Credit Counseling Service or any non-profit credit counseling service. Here's what you can expect: a decrease in your interest; making one payment to the counseling service and they pay your cards for you; a modest fee charged for doing so that will be more than eclipsed by the savings in interest; being debt free in 4-5 years, and actually feeling good about it; having a clean credit rating when you've finished making payments.

I don't think U.S. creditors would go for a Canadian-style "consumer proposal", but they will work with you if you go through CCCS or a similar outfit. We tried the "consumer proposal" thing with a creditor, and they referred us to CCCS; things got much better thereafter.

What will credit counseling do to your credit rating? While you are in the program and making payments, don't plan on buying a house. We tried that and were turned down for the loan. But we were able buy a car on credit, though. If you've been making payments through CCCS for a while and lose your job, CCCS will negotiate even lower payments on your cards until you can get back on your feet. (Been there, done that.) The 4-5 year payout time seems like forever, but suddenly you'll be 3.5 years into it and the light at the end of the tunnel will be well worth the wait. Upon making your last payment, having successfully completed a credit counseling program and paying off the associated debt is actually a PLUS to your credit report.

Why do the creditors agree to reduce interest rates if you go through a credit counseling firm? Because if they have to send your debt to collections, they lose a shitload of money, even if you eventually pay off. In this era of low interest rates, they are still making money off you if you pay 9% instead of 24%.

Take it from someone who's done it: Credit counseling is the way to go.
posted by Doohickie at 9:04 PM on December 28, 2004 [1 favorite]


Bankruptcy isn't a desirable option, and it's not intended as solace for irresponsible cowards -- but it does exist for a reason. You're employed, you didn't blow your money on drugs, and you've been doing your best to reconcile your debt. At $70,000, it's probably worth talking to a lawyer about bankruptcy. It isn't necessarily shameful.
posted by cribcage at 9:36 PM on December 28, 2004


I agree with cribcage. Bankruptcy is not shameful, but it's also not desirable. It isn't a magic bullet for your financial problems. There are significant concequences. You should do everything you can to avoid it.

You want some sort of debt consolidation, then you need to learn how to live extremely cheaply. This means making sacrifices, one of which might be moving in with friends/family, if they'll help. If you're buying DVDs or CDs, that needs to stop. Say goodbye to all of life's "little luxuries".

How the banks let someone with no assets (I assume you have no assets) accumulate debt of $70,000, I have no idea.
posted by krisjohn at 11:53 PM on December 28, 2004


for what its worth, a friend of mine was forced to declare bankruptcy due to losing her job from disability. She lost her house, but managed to keep her car and her belongings. She packed up, moved to Florida, and within a couple years, had managed to get another mortgage (for a house valued at approx. 50% of the house she lost in VA.), and hasn't looked back. I don't know if it was the disability part, or what, but, at least in her case, it wasn't such a life-shattering experience.
posted by crunchland at 11:56 PM on December 28, 2004


This is something that does happen when people are living beyond their means and suddenly become unemployed.

You have a few options: a) credit counseling to extend the debt over a longer period of time, negotiate better interest rates, perhaps forgive some finance charges, etc.; b) working a second job and/or selling personal possessions to pay down the debt faster; c) declaring bankruptcy; or d) defaulting on your debt.

Let's put aside my opinion that d) is morally wrong and focus on the logistics of it. If you default on your debt to credit card companies, they will find you. They have your Social Security number already, which means they can find you as long as you are legally employed in the United States of America. It would probably take at least six months before they could get a default judgment against you, but once they did that they could seize your bank accounts and garnish your wages. Why would you put yourself through this? Even if you don't care that you're stealing, it's just going to be an enormous hassle.

Unless you're planning to leave the country, work illegally elsewhere, and live by your wits, d) is an untenable option. Logistically, you'd be better off turning to a life of crime and paying off your credit card company with the proceeds (morally, you'd be compounding wrongs, of course, by doing that).

For those who like to read economic papers, let me recommend Athreya on bankruptcy.
posted by Sidhedevil at 8:48 AM on December 29, 2004


Bankruptcy is best for you. If you are paying off one credit card with another, all you are going to do rack up greater and greater debt.

Bankruptcy is for people who find themselves in a hole they cannot get out of - and dude, you are in a big hole.

If you need to buy a house or something in the next few years, I would have a relative purchase it for you and work out an agreement. In the meantime you can build back up your credit.

I really can't imagine paying off a debt that large.
posted by xammerboy at 10:33 AM on December 29, 2004


You've gotten a lot of advice and sadly some inaccurate information.

Lenders MAY NOT, under the law, harass anyone but the debtor. Not your neighbors, not your roommates, nobody.

Here's the deal.... calling relatives and neighbors is one angle that debt collection co.s use to get ahold of debtors that won't answer their phones, etc. The collectors should not identify themselves as working for a debt collection co. They'll usually say something like "This is John Smith. I'm trying to get ahold of Jane Doe, but I'm having a difficult time. Could you ask her to call me please?" This is not harassment unless the recipient of the call tells the caller to not call again and the caller does indeed call again.

If they do so, you should report them to the FTC.

Actually, if a collector calls your neighbor after being told not to, they (not you, you don't have standing), should retain a consumer law attorney who will take the case on a contingency basis and sue the collector.

Unsecured lenders (i.e. credit cards and "signature loans") cannot seize your assets. In fact, they have almost no leverage to force you to pay without first taking you to court and getting a judgment against you, and this is costly enough that they would prefer any number of other outcomes.

Yes and no. Creditors do prefer that you adhere to the terms of the contract/agreement and pay the money that you owe. They prefer that they don't have to either sell the account for pennies on the dollar or assign it to a creditors' remedies law firm for suit. But frankly, it doesn't cost them that much money to assign it for suit. This is because nearly every credit card agreement has a collections clause that states you will pay for any costs associated with collecting from you, including attorney's fees. So when the attorney sues you, the dollar amount will include the principal debt & the court costs & attorney's fees. Plus, most creditors are now availing themselves of the conciliation court, as opposed to district court. The reason being the conciliation court fees are much lower than district court.

If you don't pay a judgment, then they can petition the court to garnish your wages. But the court may not allow this if you are in a bad financial situation (i.e. unemployed).

This is state-specific and varies by jurisdiction. In most states, once a judgment is granted, the creditor can levy your bank account and garnish your wages simply by filing an affidavit regardless of whether you're employed. The only thing that the plaintiff cannot take is income consisting of government benefits. In other words, they can't take your social security check.

It would probably take at least six months before they could get a default judgment against you.

Perhaps this was simply a typo, but it's inaccurate nevertheless. A "default" judgement is one where its granted to the plaintiff (or defendant on a counterclaim) because the defendant fails to appear before the court. I'm granted hundreds of these every month. Strangely enough, people that don't repay their debts also don't like to show up in court. It does not take "at least" six months to get. You get it right there and then on the hearing date, which is why it's called a "default" judgement.

In most jurisdictions you can normally get a court date within 60 days of filing the complaint. If the defendant does appear, the ruling will normally issued by the court within a two weeks. Then there's the appeals time, which is normally 21 days. After that period runs, the creditor can avail themselves of the other remedies, i.e. garnishment.

I think that you really need to look at how you got into this situation and think long and hard about if you will be able to avoid doing it again. Sure, you can file a bankruptcy petition. And sure, you'll be able to get credit again. But, what makes you think that you'll be able to avoid doing this again? What lifestyle changes will you make? What have you learned from this? Anything? Call me skeptical.

I just thought I could do something better with my life than give up another eight years to this.

Why not? You entered into contracts, agreeing to pay for the credit. You received money, goods, and services pursuant to those contracts, now it's just too much for you to work for a few years to pay it all back?

Don't ask where the money went. It's all been used wisely and judiciously

Clearly not because "I have been paying one card with another for a year or two when I was out of work." Ummm, that's neither wise nor judicious.
posted by Juicylicious at 10:45 AM on December 29, 2004


It will most likely take at last six months for the credit card company, or any debtor, to reach the point at which they have a) decided to pursue legal action, b) filed the appropriate paperwork for a court appearance, c) been scheduled for a court appearance at which anonymous doesn't appear, and d) secured a default judgment against anonymous.

The "six months" referred to that process, and is based on my own experience of having filed complaints for non-payment. It may be that my local jurisdiction is waaaayyyy slower than anonymous's, but I think my estimate was fairly accurate for most of the US.
posted by Sidhedevil at 10:56 AM on December 29, 2004


I just thought I could do something better with my life than give up another eight years to this.

Why not? You entered into contracts, agreeing to pay for the credit. You received money, goods, and services pursuant to those contracts, now it's just too much for you to work for a few years to pay it all back?

Bingo. The attitude here seems to be "I got a bunch of stuff, and now I'm too lazy to actually honour my obligations."

Get off your duff, go see a credit counsellor, and start paying.
posted by dirtynumbangelboy at 12:22 PM on December 29, 2004


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