 Consequences
of ignoring credit card debt
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 Dear
Debt Adviser,
If I can't work something out with my credit card companies and
I walk away from them, what can they do, since it is unsecured debt?
-- Raymond
 Dear
Raymond,
You may walk away, but it has been my experience
that you can't hide from creditors. In fact, "walking away" is probably
your worst option for handling a debt problem.
It is true that credit card debt is an unsecured debt,
and as such it is unlikely that someone will show up at your door
to repossess anything or serve you with a foreclosure notice. However,
credit card issuers have many options with which to get their money
back and make your life miserable, should you decide to stop making
payments. Here are some of the things they can do:
- Make it harder for you
to get a job or promotion. Many employers check credit
reports before making hiring or promotion decisions. A negative
mark on your credit report, issued by your creditor for nonpayment,
will raise questions and concerns that may result in you being
a less-attractive employee.
- Raise your interest rates.
Many credit card issuers have a penalty interest rate of 25 percent
to 30 percent. If you default, you'll qualify for it and your
bills will look like you invited a hungry relative for dinner.
Under a policy called "universal
default," if you are overdue on one card, all other cards
will raise your rates. Your credit score will drop, and a lower
credit score means new loans and credit will cost you more.
- Raise your insurance rates.
Many insurance companies use the data in your credit report to
generate an "insurance score." Bad-credit risks pay
more for insurance or may fall outside of underwriting guidelines
and may not be offered renewals.
- Keep you from
getting the apartment you want. Landlords often check credit before renting.
Bad credit can keep you out of the good places that would impress prospective
girlfriends.
- Call you till the cows
come home. Expect that if you owe enough, your account
will be turned over to collectors, lawyers or be sold to professional
debt buyers. Interest will accrue and fees will be charged. Your
phone will begin to ring more often and you will never want to
talk with the person on the other end of the phone. Although the
Fair
Debt Collection Practices Act protects you from abusive collectors,
it does not prevent legitimate collection procedures, which, even
within the law, can ruin an otherwise nice day.
- Garnish your wages.
You entered a contract with your creditor and said you would uphold
your end of the agreement by making payments on your account as
set forth in the agreement. If you choose to breach the contract
by not paying, the creditor has the right to sue you in civil
court to recover the money it is owed. This includes liens on
assets and attaching your wages through a process called garnishment.
The latter is not a plus with your employer either.
A
better idea than walking away from your obligation would be to get some help working
out things with your creditors. If communications are breaking down, contacting
a reputable credit counseling agency may help you come to terms with your creditors
and determine the best course of action given your specific financial situation.
If all else fails, you may want to get some legal advice to deal with your problem.
Walking away will not solve your problems, quite simply because your creditors
won't let you. Good luck!
The Debt Adviser, Steve Bucci,
is the president of Money Management International Financial Education
Foundation and the author of Credit
Repair Kit for Dummies. Visit MMI
for additional debt
advice or click
here to ask a debt question.
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