Below is an excerpt from our Debt Free Forever Guide. Be sure to download the free guide to help dump debt for good.
Is your debt already delinquent, but still with the bank? Then start here.
You are current on your debt, struggling to make payments. Ironically, this is the hardest situation. When you are making payments, the goal of the bank or credit card company is to keep you making those payments. They are very happy receiving the minimum due. By making the payments, you are demonstrating that you are capable and willing to pay. So, the banks are very keen that you keep doing it.
Having said that, you should still try to negotiate with them and see what they can offer. Just give your credit card company a call, and tell them that you are in financial difficulty and will no longer be able to make payments on time. Tell them that you won’t be able to make the payment next month, and you would like to see what forbearance options are available.
Most banks offer two types of forbearance programs:
- You are having a temporary problem, so they look to reduce your payment for a temporary period of time. For example, you could pay interest only for a few months, and then have the payment increase once your temporary problem is over.
- You have had a significant change in circumstance (e.g. death in the family and subsequent reduction in earning potential), and you need to have principal forgiven. Since you are reading this, you most likely are suffering from the second (more serious) problem. However, banks are much more likely to give you solutions to the first problem, especially if you are current on your debt.
- When you are speaking to the bank, don’t accept a solution that only gives temporary relief. For example, if they offer interest-only payments for 3 months, reject that offer. You are looking for serious debt relief right now, not a temporary solution. Your chance of success is low.
- But you should always give the bank a chance. And, some credit unions may be even more generous, working with you in person. I am still old-fashioned. Even though the banks probably won’t treat you like an individual, it is worth trying. See if you can negotiate a settlement that works. If it doesn’t work, then you may want to consider that you stop paying. Once you become delinquent, you will have more options with your bank. And, the more delinquent you become, the greater the chance that you can reach a settlement.
Once you stop making payments, you will seriously hurt your credit score. In fact, once you start down this path, it will be a few years before you will be able to borrow again, and it will be 7 years before this mess completely disappears from your credit report. But just think about this: if you barely afford to make the minimum payment, it will be at least 30 years before the debt disappears. If you stop paying, it will be 7 years until the debt completely disappears from your credit report.
Once you stop making payments, expect the collections calls, letters, texts and emails to start coming. And they will come with incredible intensity. You should expect to hear from every creditor every day for at least 6 months. They will then sell that debt to a collection agency, which will start to contact you daily as well.
Third AND BIGGEST Warning
Your wages could be garnished. That means your creditor could sue you, and money could be taken out of your salary automatically to make payments on your behalf. There is a federal limit on how much can be garnished (and this only applies to the unsecured debt that we mentioned, not student loans, alimony and other debt).
At most, 25% of your disposable pay can be garnished. Disposable income is your gross salary minus most of your deductions, including federal income tax, social security, Medicare, state tax, health insurance premiums and any involuntary pension contribution. You can use this calculator to see exactly how much money you could have garnished from your wages.
It’s Better to Handle the Issue Now
This is not an easy path that you are walking down. You owe money, and you have decided not to pay all of it back (for various reasons). You can expect that the companies will try to get their money back. And, if you have money and are just trying a short cut, you can expect the courts to catch up with you. Wage garnishment is likely, if you are just refusing to pay.
But, if you can’t afford to get out of debt, the pain of the next few months may be worth it, because you will fix the problem in a few years, rather than living with this debt for the next 30+ years.
Download our Debt Free Forever Guide! It’s FREE and will help get you back on track.
Featured Accounts AD
Goldman Sachs Bank USA High-yield 12 Month CD
Ally Bank High Yield 12-Month CD
CIT Bank Money Market Account
Goldman Sachs Bank USA High-yield Online Savings Account
* All banks listed are a Member FDIC.