What happens if you don’t pay your credit cards.

 

Your credit scoring gets screwed up. Meaning you’ll have bad credit for a while. That’s about it.

This is what credit card loans are. They are backed by a promise and your credit history (if you have any), that you are going to repay them every penny, plus interest. There is no security, no collateral, when you and the bank agree on the terms and sign the contract. They are a simple IOU s (I Owe You) notes based on a simple promise by you. A promissory note!

So why are the banks who are so stingy, giving away their money on a simple IOU note? Because they are hungry for money. And credit interest is a gold mine for them. The interest you pay is huge. Imagine! A $3,500 dollars loan at the standard interest rate of about 17.9 percent takes 33 years to pay off if you just make the minimum monthly payments. WOW! 33 years.

This is what happens if you stop paying your credit card bills.

The bank gonna send you a mail to remind you of the missed payment. Than they’ll send you another reminder in a week or so. After that a phone call. After that some more mails and some more phone calls for about a year.

After about 5-6 months the mails will stop coming so frequently, but the phone calls will not. You’ll get at least one per day if you answer your phone or several if an answering machine picks up the line. Different threats will be included what happens if you don’t pay. None of them has any backbone, but they will use them anyway, because most people can be intimidated by them. Simple psychology.

These phone calls will continue for about a year.They’ll include several letters from their lawyers or from different outside law firms. Might even get a threat that you will be taken to court if you don’t pay. They might even take you to court over it and they will win because you won’t show up.

None of them are effective if you don’t respond at all. All you have to do is ignore everything from them. Straight into the garbage can without opening the letters or answering the phone. Get a secondary phone number for yourself.

You’ll get different colored envelopes because they say if you get a colored envelope, say a yellow one, or red one, or brown one, or whatever color, you will most likely open it, out of curiosity. Simple psychology.

You’ll get letters saying “pre court division” or “home visit division”, but just chuck them into the garbage can with the rest. You might get a home visit from them and they will ask you if you can pay, but all you have to say is, ” I don’t have money”.

In the UK they might come to your house and call the bank on their own phone, because they want you to talk to someone in the collection department (makes it more credible and official). Just tell them the same thing, you have no money, times are hard, lost job, your car broke down, you can’t pay your electricity etc. Whine a little. They are nothing but psychological games. The loan was given on a simple promissory note and they have lost the chess game. They’ve gambled and lost.

The gamble was, they took their chance with you based upon your previous (or lack of) credit history and your nice personality and your promise that you will re-pay them.

What happens to your credit card loan if you don’t pay it.

The card companies just like banks, package the bad loans and sell them on the secondary loan market to a private equity firm or to some other investor group for whatever they can get. This is usually a bidding procedure just like an auction. The highest bidder will get it. Say, a 500 million dollars worth of loan might sell for 250 million or less. From that on the card company won’t call you any more, but this new  owner of the loan will, trying to collect on the debt.

After maybe 6 months or a year this group will sell their bad loan (the loans they couldn’t collect) portfolio for the fraction of it’s value. Say a 100 million loan might sell for 5 million. From that on these new owners will call you and try to collect. There is a chance that this new owner will sell it yet again for even cheaper if they can’t collect.

Finally when they can’t get the money from you they have a choice of

writing it off of their tax or sell it yet again for peanuts. At this stage a couple of years have passed since your default and the chances of recovering any of that debt is very slim. Usually companies who buy these junk loans just buy it for the tax write off value of it.

You have to make sure you don’t defraud them tho. That means getting a credit card for the purpose of taking the money out of it and not paying them anything. You have to have a genuine reason for not paying them. After all the money was given in good faith and you had asked for it. Even though they’d shoved all those commercials (using psychology), down your throat night after night.

You can always declare bankruptcy and stop all this pressure at once.

Why most people who default don’t pay off their credit card bill later on?

Because they are threatened by the above tactics making them afraid of the credit card companies.  Intimidation either creates subservience or resistance. Here the latter applies.

Why? Because most people will hate the card company for threatening and intimidating them. They’ll hide from them out of hatred and fear.

Imagine you are in trouble and law firms, the court, collection agencies are calling you, sending you letters, threatening you. Consider in some depression due to your circumstances, consider in the pressure you are under, because you have no money and don’t know whether you’ll be out of your house or not in a month and you have no money to rent another apartment. Living day to day and all this pressure.

Circumstances change and credit card companies know this. They gamble these facts into their decision when giving you the loan. It’s all part of the game -as they say it in business.

Real estate (house and land loans) don’t work this way. House or land is used as collateral when someone takes a loan out on them. So the creditors simply take it and sell it at an auction and that usually covers the arrears.  If the house sells for more than the amount of arrears, the bank will give you the extra money after they take out all of their expenses and the amount you owed them.

Sometimes if the house or land don’t sell at auction, the lender offers it as a buy it now, ten percent or more below the amount of the arrears and write the loss off of their taxes. Still messes up your credit rating tho for the next few years.