It is theoretically possible to get out of credit card debt without paying. There are some options like filing for bankruptcy or moving to states that prohibit garnishment or levying. However, no option is pretty and your best bet, if you’d love to have a decent chance at credit in the future, is to pay off your debt.
You get to pay your debt in every billing cycle. Paying your credit debt on time is a positive metric for your credit score and credit score is important if your finances significantly depend on loans or if you’ll likely borrow in the future for whatever reasons.
5 Things that Happen When You Don’t Pay Your Credit Debt
1- Late Fee
When you miss a debt payment on a credit billing cycle, your creditor would move the debt to the next cycle while adding a late fee which can go as high as $40, depending on the credit card company.
2- Increased APR
Every time you miss paying in a credit billing cycle, the Annual Percentage Rate (APR) can rise significantly higher than regular APR for your account. So, every time you miss paying your credit debt, you risk paying debt on a higher APR in the subsequent billing cycles.
3- Cancellation of Introductory APR
If you’re availing an introductory APR offer on your credit card that charges 0% interest for a specified period or you transferred balance to a credit card with 0% APR, you risk getting the introductory APR canceled if you miss paying your credit card debt consecutively for two or three billing cycles.
4- Decline in Credit Score
Your credit score declines in response to missed payments on credit debt. If you have a high credit score, the decline in points is higher compared to a decline in an already mediocre credit score. Bad credit score is bad for borrowing on low interest rates.
If you continue to not pay your credit debt for consecutive billing cycles, your credit account will default and shut down. Your creditors can then take harsh measures like selling your debt to collection agencies which usually get a garnishing order against your wages or your bank account.
Essentially, to recover debt, they’d either get your bank account frozen and recover any funds or lock in on your wages to cover for your debt. Worse, Statute of Limitations periods are usually 3 to 6 years in most states and creditors are most likely to begin their legal actions within the period.
If you want to get out of the credit debt without paying, chances are that you’re financially struggling. Fortunately, there are options you can look into for relief.
2 Ways to Get Out of Credit Debt Without Paying
1- File for Bankruptcy
You can file for chapter 7 bankruptcy. This is the type of bankruptcy where your assets that aren’t covered in Exempt Property, are seized to cover for the debt you owe to your creditor. It might sound ugly but this is the only option where your debt is discharged without you having to technically pay the debt.
A huge downside of chapter 7 bankruptcy is that it stays on your credit report for an average of 10 years. It’s extremely negative for your credit score and makes borrowing hard and costly (through higher interest rates).
When it comes to Chapter 13 Bankruptcy, its filing would lead to courts extending your debt payment period to 5 or 6 years to ease your financial squeeze. You will have to keep paying your debt periodically within the time. Any outstanding debt after the period is usually discharged. Bear in mind that Chapter 13 Bankruptcy does not immunize you to interest on your debt payment but it could be reduced significantly than what you had to pay originally.
2- Negotiate with the Creditor for Debt Forgiveness or Debt Settlement
Credit debt, unlike some other debts, is unsecured. What that means is you don’t get to deposit something of value as a collateral if you fail to pay your debt (Secured Credit cards are an exception).That means you’re not automatically going to lose an asset or income if you fail to pay your credit debt and the creditor’s only real chance is to sell your debt to a collection agency at a ridiculously massive discount.
This gives you considerable leverage to the creditor to try to negotiate and get your debt forgiven and while debt forgiveness is increasingly unlikely, it still offers a chance that you can get the entirety of your debt forgiven.
What’s more likely to happen in a negotiation is something called Debt Settlement. Creditors are rational entities that assign more benefit to forgiving some of your debt if the rest of the amount that you pay is higher than what the creditor would get from selling your debt to a collection agency.
Even if the creditor chooses to sell your debt to a collection agency, you need to have preemptive measures in place, like moving your funds to a joint account owned by you and your spouse in Tenants by Entireties bank account which protects your funds from getting seized by collection agencies. Other measures would include moving to and finding work in a state that protects its locals from wage-garnishment.
You can hire the services of a professional negotiating firm for effectiveness. However, if your debt is partly or entirely forgiven, it would become liable to tax since the IRS considers any forgiven debt as taxable income. Basically, there’s no free lunch.
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