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$15,000 debt. Can't pay. What's next?

Dear Debt Adviser,
I have a credit card with about $15,000 that I am not able to make any kind of payments on anymore, not even the minimum required. I have never been in this situation before and I don't know much about debt. What can the credit card company do to me if I never pay the bill? Thanks.
-- Susan

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Dear Susan,
Why do you have $15,000 on a credit card and why can't you make any payment? These two questions are the keys to giving you useful advice. In the recent past you were able to make some payment on this debt or you wouldn't have been able to keep charging to your current level. So clearly something has been deteriorating over time or something major happened very recently. I can't tell whether you are out of work, have medical bills or some of life's other little surprises have followed you into the new year like an old unwanted admirer. Whatever the cause, your finances are out of whack and need realignment.

The beginning of a new year is a great time to get serious about some changes in your financial life. Begin by adding up all your income and getting rid of unnecessary payroll deductions. Then list all of your living expenses and subtract them from your income. Either trim expenses or add income from new sources until you can balance your bills. This is fundamental to getting in control of your finances; however, few people take the time to do the exercise without some real incentive.

I hope your incentive is in knowing what the credit card company could do to you. Warning: It is not a pretty picture, but I want you to know the worst you may have in front of you.

If you fail to make payments as agreed your interest rate will go to the penalty rate on this card and probably all your others as well. Some of the largest credit card issuers, including Citibank and Chase, charge a 31 percent penalty fee. You will be hit with fees for being late, and when those pile up, you'll also be charged "over-the-limit" fees, plus fees for collections and legal actions. You may end up in court and may have court costs added to the bill and possibly have your wages garnished.

You should know that any of these actions would make you less attractive to your employer or future employers. How will they know? Because your credit card issuer will report your misbehavior to the credit bureaus, and employers check credit reports.

They're not the only ones. As your credit and credit score plummet, you'll also find it harder to get future credit or even insurance. At the very minimum you will be hounded day and night until you pay or the statute of limitations runs out on the debt. And that black mark will remain on your credit report for seven years, meaning it will be that long before lenders will give you favorable rates. If you want to buy a car or a house, you'll pay through the nose.

If I'm coming on a bit strong it's only because I want you to know how serious ignoring a big bill can be. You stand a much better chance if you do your homework first and then talk to your creditor and explain your situation and see if there is a hardship program for which you might qualify. If all this is just too overwhelming for you, then seek the advice of a reputable, accredited credit counselor.

But whatever you do, do it before you become delinquent on your credit card account. This will not improve with age.

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.

Bankrate.com's corrections policy -- Posted: Jan. 9, 2006
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