Strategic Default on Credit Cards?

So, I found this charming comment while browsing consumerist.com the other day.  It’s a real conversation starter.  What do you think?  My opinion is at the end.

“…I am in some severe debt. I had been a perennial student/graduate student/post doc for going on 15 years now. I have expensive tastes, credit was free and the limits were liberal when banks were crushing our economy and issuing mortgages on properties nowhere near their value, just to line the pockets of hedge fund managers, real estate agents, appraisers and construction firms.

Now that everything crashed, instead of having my balances wiped clean while watching the banks fail and go bankrupt, the American taxpayer saved the banks, and my high balances still remain intact. Meanwhile people with underwater homes get assistance, or the general acceptance that walking away from their mortgage is OK, due to the circumstances.

In the interim, I had maintained a 50% debt to credit ratio. I had several cards with high limits that were unused, and some cards carrying balances. Shortly after the crash, all cards that had no balance were canceled and existing cards APR was raised.

Where is my bailout, and who is responsible? I was issued credit far exceeding my income at the time, and the banks didn’t care. Much like someone issued a mortgage on a house that was way overvalued, it is a fault of the banks.

Sure sure sure, I charged, I got the gifts, I am responsible, stand up and take it like a man.

Well here’s the deal. I have already paid close to $3k in interest every year for several years to these banks, and they are doing quite well. I think it’s time for me to start making some moves.

I am stopping payment on a card with a 16k balance. Enough is enough. I have been a customer since 2003 and carried a balance of $16k for about 3 years now. A rough estimate would be that I have paid 8k in interest over these three years. (They raised my APR from 15% to 21% last year for no reason other than they could). I will settle for 8k. Half the balance owed, and I think in considering the interest, paid in full.

The bank will just write it off as a tax break and see the befits of the full 16k, and the >10k in interest I have paid over the past several years.

Yet they will treat me like s[redacted]t during the whole process, and I have to default for 6 months to get the opportunity to settle for 8k. Also it will shred my credit. I don’t care about that. I don’t have a major credit purchase to make in the coming years, so it will rebound. Besides, due to my debt to credit ratio being turned upside down by these banks (through canceling lines of credit I was keeping open, to “play the FICO game”) my credit is in the dumps now anyway. I have a huge history of paying every bill on time, yet my score is around 620. During the height of the financial crisis, my credit score was 760. I had about the same amount of debt, and the same amount of on time payment history, just more open lines of credit.

Who is with me? I can take the heat.”

donjumpsuit

[Edited for punctuation and spelling.]

I am not with you.

Here’s why:  just because someone else is getting away with bad behavior, doesn’t mean it’s alright for you to behave badly.  Just because other people mortgaged themselves into a corner and are reneging on their obligations, doesn’t mean you should.  Are you capable of paying back the debt you owe?  It sounds like you can, but are choosing not to.  If so, then you get no sympathy from me.  Toughen up, read my posts on How To Pay Your Debt Down As Quickly As Possible and How To Make A Debt Snowball, and get the annoying debt gone.

It sounds like you resent other people who started this whole mess.  I don’t blame you.  That makes sense.  It’s their fault, and they should be the ones suffering the consequences.  Unfortunately, when economic catastrophes happen, they happen to a lot of people who don’t deserve it.  There’s a lot of collateral damage.  I was some of that collateral damage.  It sounds like you might have suffered as well, or maybe someone you loved.  Either way, we got a raw deal.  So, what are you going to do about it?

It sounds like you’re preparing yourself to take the low road.  That’s too bad.  Not only is it too bad from the perspective of the consequences of not paying your bills, but also from the perspective of your self-esteem.

First, here are some of the consequences of not paying your bills:

  • You will start getting phone calls.  These phone calls will not be friendly, and they will be frequent.  You are about to embark on a period of your life when you will be harassed for money constantly.  Do you really want that?
  • You will receive scary mail.  Many of the letters will threaten legal action.  Enjoy.
  • There are likely to be some shenanigans.  Despite the Fair Debt Collection Practices Act, there are still plenty of abusive, coercive, and illegal practices in the debt collection world.  Be prepared to have your debt outed to friends, family members, or employers.  “But that’s illegal!” you may say?  I don’t think the collection company cares.
  • I hope you didn’t get too attached your previous credit score, because it will plummet.  While you may not anticipate making any large purchases in the near future, there are many situations where your credit score and credit record affect your life.  Credit scoring is used in the pricing of insurance policies,* renting apartments,* utility contracts and cell phone agreements,* and offers of credit.*  Expect it to be harder to get good prices on anything you may end up owing someone for.
  • I hope you don’t have any special government clearances where you work, because you may not have those clearances for long.
  • There’s also the risk that, if you skip the bill, that your other credit cards will go into universal default.  This means that other credit companies may be able to jack up your interest rate on your other credit cards, even if you pay those cards on time.
  • If you don’t pay the bill for a long enough period of time, you will probably be sued.  This is a bad thing.  The judgement will probably be against you.  They may even garnish wages or take a lien against other assets.
  • What if they don’t accept your half-price offer?  They don’t have to, you know.  Also, you can bet there will be additional fees and interest that will increase that total of your debt.  Add on legal fees from a lawsuit, and you debt could get even more ridiculously large than it already is.
  • Did you know creditors can force a bankruptcy?  It’s called an involuntary bankruptcy.  Look it up.

Not all these things are likely to happen to you, but you’re still opening yourself up to a humongous hassle.  If that doesn’t dissuade you, then consider what I believe may be a major impact to your self-esteem.  Not paying your debts when you’re capable of doing so will (hopefully) make you feel bad about yourself.  I suspect that this is true for you, and you know it.  All this excuse making, that the banks deserve it and that they wronged you, may be a smoke screen of rationalizations to make yourself feel better for reneging on your agreement.

So, if you can pay your debts, pay them.  Than take it as a lesson so that you never get in over your head again.

What do you think?  Is it too harsh or not harsh enough?  Sound off in the comments.

* Not all, but many.

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