What if you can't pay your credit card? Maybe you lost your job, or have another emergency that needs paid first, or your bills are becoming so high that something has to give.
Here's what will happen, and here are some steps to take, to deal with the situation.
The Bad News
First, the credit card company will start adding late fees, but you've probably already passed that point. Then they'll call. Your credit score will fall as the late or missing payments are reported to the credit bureau. After three or four months, the credit card company may decide to sell your debt to a collection agency, and those are the real professionals. If they can't collect by calling and writing, they may sell the debt again to another company who'll begin the hassling all over again, or they may decide to sue you. If they have proof the debt is yours, they'll win.
Up until that point, the company can't repossess anything you own or garnish your wages, but once they have a court judgment, they can take money from your bank account or notify your employer that they're garnishing your wages, though they can't garnish everything.
The Good News: You Can Deal With This
It doesn't have to get to that point, though. Being in debt and unable to pay can feel overwhelming. It may seem easier just to ignore the problems and hope they'll disappear on their own. But if you can muster the courage to face them head-on, you may be surprised at the success you can have getting things under control.
If you've received notice that you're going to be sued, contact a lawyer. However, you still may have a chance to negotiate with the creditor before the lawsuit actually happens. Continuing with the suit will cost them money, so they may be glad to receive less than the full amount of the debt, in exchange for not having to go through with the suit.
But better yet, if you can't pay your credit cards but you haven't been sued yet, now's the time to take action.
Before Talking to Your Creditors...
Sit down and figure up a budget. You're going to talk to your creditors, and the first thing you need to know is how much you can afford to pay. Be realistic. Decide where you can cut back on spending, but emergencies will come up, so don't cut things too close. This is your best chance to convince your creditors that you can be relied on to pay what you promise. If you miss payments after this point, it'll only convince them you're untrustworthy and they might as well go right to a suit. So estimate realistically what you can afford to pay each month toward your bills, and then subtract a few more dollars from that, to be on the safe side.
If you're just starting to get past due and your credit is still decent, you might consider a consolidation loan, where you borrow money to pay off your credit cards at a lower rate or longer term, so your monthly payments are lower.
If you can't afford even the payments of a consolidation loan, that's okay; that's what we'll be talking to the creditors about.
If you can't pay anything--for example if you've been laid off and have no unemployment check or all of it is going to barely paying your living expenses--you can deal with that too. The important thing is to have a realistic, painfully honest sense of what your financial situation is, so you can talk to your creditors.
Make a list of the credit cards you owe and the amounts. Figure out how much, if any, you can afford to pay toward each card.
Credit card companies would love to get all their payments in full, on time. But they know that isn't always going to happen, so their next best hope is that they can get something, with as little trouble as possible.
What they really don't want is to pay a lawyer big bucks to sue you, sell your debt for pennies on the dollar, or see you declare bankruptcy and lose all their money. They won't get much of anything that way.
Once you've looked at your budget and figured out how much you can afford to pay each month, even if it's only a few dollars, you can take the next step toward getting out of debt. This is the scary part, but it's also the part that accomplishes the most: calling up your creditors and talking to them. Hold on, and I'll write about that next time.
8:44 p.m. April 2
What about declaring bankruptcy? Won't that get rid of anything you owe on credit cards?
9:21 p.m. April 2
Yes, and that's always an option down the road, if nothing else works. But if you can negotiate with credit card companies for a settlement or other payment plan, you can preserve more of your assets and keep more control of your money. Plus if you try negotiating yourself, it doesn't cost anything.
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