Stop Bill Collectors!

You’re unable to pay even the minimum balance on your bill due to unemployment, or other reason beyond your control. What’s next? A lot of people email me, asking “what happens if I simply do not pay my bill?” A few things could happen.

1. Your credit score may be severely impacted
2. You might be sued by your credit card company
3. A credit collection agency may take over your overdue balance

Let’s talk about credit score for a minute.  What is it?  In layman’s terms, it expresses how conscious you are about paying your credit card, loans, or other lent money back on time, if at all.  There are three credit reporting agencies: Equifax, TransUnion, and Experian.  Sometimes, companies look at your overall score, that is, your score with all of these companies rolled into one number.  In other instances, a credit card company or lender will look at each of these scores individually in order to get a more accurate picture of your credit portfolio. If you don’t pay your bills, your credit score will get trashed, and it’s unlikely anyone will offer you credit in the near future (or until you start paying your bills on time).

It’s unlikely that your credit card company will sue you. They are more likely to turn your account over to a credit collection agency who can, and often will, sue you. But first, you will get several overdue notices in the mail.  After a few months (for me, it was 3), your credit card company or lender will turn over your outstanding balance to a credit collection agency who will try to get you to pay off your bill at all costs.  

Usually, they offer to set up a payment plan that, 9 times out of 10, is unreasonable.  In other cases, they might offer to settle with you, which means that you pay your balance all at once but it is considerably less than you owe.  For example, if you have an outstanding balance of $10,000, the collection agency might negotiate a settlement with you for $8,500 instead of the full amount that you owe.  Often, if they offer a settlement, they will demand full payment upfront, which in most cases is highly improbable on your end.

If you don’t pay the collection agency, one of two things may happen.  The collection agency may take legal action against you in a civil court to try and recover the money. They’ll most likely get a judgment against you which will then lead to bank and wage garnishments.

Regardless of how much you owe, it is extremely unlikely that you will “fall through the cracks” in the eyes of the credit card company: 99% of the time they will not forget your debt, unless it’s a very small amount (less than a hundred dollars or so). In the unlikely event they do forget your debt, that’s not a good thing.  A friend of mine, Paul, had his credit card company write off just over $2,000. His credit score was completely annihilated and he was barred from ever doing business with their credit card company or their affiliates or business partners, including other banks.

You can try negotiating debt down with your credit card company, if you can afford to pay in one lump sump. The same tactic may work for credit collection agencies, but bear in mind phone calls with them are like statements made at a police station: anything you say can be used against you. They will mine you for information about your job, your income, and your assets. Before you know it, you’ll find your bank account emptied and your wages garnished through a court order.