Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also writes regularly for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs. See her website SallyHerigstad.com for more personal finance tips and free budgeting worksheets. Ask Sally a question, or read her previous answers in the To Her Credit archive
Dear To Her Credit,
What would be the legal issues if I cannot pay my credit
card bill at all, not even the minimum payment? I am concerned about what the credit card company could legally do. Can
they take my house or car? I just can't
afford my payments.
I talked to the company and agreed to pay a certain amount a
month for one year, but I can barely afford that. When the one year is over, my
payments will go up, and then what will happen? -- Debbee
They can't do much -- at least in the short term. Credit
card companies can send letters and call you, but they can't boot you out of
your house or anything that drastic when you miss a few payments.
Missing payments is still not something you want to do,
however. The bill collection process starts out gently and gets progressively
more unpleasant from there. Here's what happens if you just stop paying your
credit card bills:
1. You get overdue notices in the mail.
2. You start to receive phone calls. Some may sound helpful
or merely inquiring; others may be downright nasty. Collectors may call
repeatedly in one day. Some even call employers and relatives, which is illegal, or they lie and tell you they can take your house.
3. The banks report you to the credit bureaus. With even a
few missed payments on your credit history, your credit score takes a dive.
This makes it harder for you to get additional credit, move into an apartment
or sometimes even get a job. If you can get credit with a bad score, it will
probably be at a higher rate.
4. Your interest rates will go up, and you will incur late
fees. There's also interest on the late fees, and then you have more late fees and over-the-limit
fees. You can see how the balance can double or triple very quickly.
5. Eventually, you may face legal action. No, they can't
put you in jail or freeze your bank account, but they can garnish your wages or
place liens on your property.
People who have been far behind on their bills tell how they
reached the point that they jumped whenever the phone rang, or they wished they
could crawl out the back window when someone knocked on the front door. That's
no way to live!
You need to find some other solution to your debt problem,
and soon. You are on the right track in talking to the bank and getting in a reduced-payment
hardship program. Next, you need more long-term solutions.
If you have most of a year before your payments go up, there's
time for you to do something. Can you take some courses that might qualify you
for a higher paying job? Can you increase the hours you work, find a better job
or do some moonlighting?
If you're already making as much as you think you will be
able to, consider ways to reduce your expenses. Go through your budget, and look
for ways to cut back. Could you move someplace where the cost of living is much
lower? I'd rather live someplace less desirable and be free of financial stress
than live in a pricey area where everyone else seems to spend money like it's
I generally advise against selling your house to pay bills. That's because the selling costs are prohibitive, and it may be hard to get back into a
home. In a desperate situation, however, you should keep your options open. You
could even move into a small apartment and lease out your house. It's better to
live in an apartment with peace and quiet than in a nice house with bill
collectors calling all the time!
Although you see advertisements for bankruptcy everywhere,
try to avoid thinking of it as an option if you can. Bankruptcy is a very, very
last resort. It's certainly not the easy way out.
Use this one-year reprieve with the reduced credit card
payments to make some changes. Don't give up -- you can take control of your finances and your life.
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