Despite your best intentions there may come a time when you are unable to pay your credit card bill’s minimum monthly payment. This may not be intentional rebellion on your part, but just a hard fact of life. If you owe money on your house or car and still need money for groceries, obviously the credit card account is going to have to be put aside. You may be worrying about debt right now, and silently fearing that the credit card companies are going to take swift, brutal action. Are these fears well founded?
Don’t be Afraid of the Creditor!
First of all, understand that the credit card companies are somewhere in between jolly old Saint Nick and Benito Mussolini. Do not expect these companies to ignore your debt or write off a huge amount of money for the sake of goodwill. No company in the world is going to do this, least of all in these hard economic times. At the same time though, don’t conclude that the credit card companies are evil conglomerates that can’t be reasoned with. Even the Internal Revenue Service offers channels of assistance for customers that can’t afford to pay up. Since the credit card companies actually want your business, rest assured they will be even more receptive than the IRS.
What Action Can Credit Card Companies Take Against You?
Let’s first consider the simple process of what the credit card company can do, will do and what they are legally entitled to do. According to IAPDA debt arbitrator Scott Wallitsch, the average credit card company will stick to a four-tiered plan of action.
Collection Calls: They will first inform you that you are past due on your account via mail and then eventually by telephone. This part of the process can indeed be frustrating. Creditors are counting on their harassing behavior motivating you to get caught up on your account.
Extra Fees: After the initial set of calls the company will start charging late fees, over-the-limit fees and perhaps even spike up your interest rate. In fact, as soon as your account becomes delinquent expect the credit card company to increase your interest rate to the legal limit—which is approximately 30%.
Credit Reporting: Once the creditor realizes you are not going to pay them they will start to report your missing payments to the three major credit bureaus. This will ravage your credit score and prevent you from qualifying for other accounts in the near future. The company is within its rights to report negative credit information, provided it’s accurate and undisputed. Remember that these negative marks will be removed when a settlement is reached or payments are picked up.
Collection Agency: If the credit card company wishes, it can recover some of their money back by selling your delinquent account to a collections agency. Some companies will do this, as they feel it is more practical to get a percentage of the total balance rather than keep chasing debtors that are determined not to pay. If this happens you will be free of the credit card company, but will now have to face the wrath of the collections people, and they are usually twice as nasty as the original creditors! Some borrowers have reported agencies calling them 10 times a day and using harassing or even abusive language to get their money. Some will even go out of their way to call you at work, to call family members and to generally make your life miserable. Remember that you are protected from harassment by the Fair Debt Collection Practices Act, and can write a cease and desist letter at any time. However, that alone will not shield you from the consequences, including…
Legal Action: A creditor or a collections agency does have the right to file for a civil judgment against you for the debt owed. The more you owe, and the more responsible you are (for example, you have a house and car in your name, etc.) the more likely you will be sued. A civil judgment may result in liens, garnished wages, or other legal arrangements ordered by a court. Once legal action is handed down, there is nothing to do except pay the amount or file for bankruptcy. (And even that isn’t cheap!)
What to Do When You Cannot Pay Your Debt
Some financial experts recommend a four step plan to negotiating directly with your creditors before the situation becomes critical. This might involve clarifying your money situation and giving precise figures and time lines, offering solutions to the problem, contacting the creditor and working out another arrangement whether through refinancing or a temporary due date extension, and submitting a letter with documentation explaining the new terms. While it might seem unlikely that a credit card company would go for a compromised offer, the truth of the matter is that they want as much as their money as possible, and want to avoid going to court or selling the note to a collections agency. You do have a natural advantage in negotiating here, provided you don’t insult their intelligence.
D&B Small Business Solutions recommends sending partial payments while explaining to the creditor your short-term goal of returning to full payment. You always have debt consolidation as a solution, though you have to remember that not all debt consolidation companies can really help you. Your ideal goal in debt consolidation is refinancing and consolidating. Otherwise, you’re paying for a glorified negotiator when you could negotiate with the creditor directly.
It might help you to use our free credit card tool so you can plan your long-term future and get the best interest rates and balance transfer credit cards. Use all of your online resources to stay out of debt and show yourself as a responsible consumer.