Should I default my credit cards?

[zstan]

I have credit card debt that I can't get under control after not using them for over a year.  I looked into some of the services that recommends defaulting and then trying to settle for 50 cents on the dollar.  Of course, this adversely affects ones credit.  Any resources or help is appreciated.  thank you.

[ShoulderThingThatGoesUp]

We have to know your income, expenses, card balances, interest rates, and so forth.

[mustachepungoeshere]

We have to know your income, expenses, card balances, interest rates, and so forth.

Those factors influence if you can repay the debt, @zstan, but as for whether or not you should default? No. Pay what you owe.

I know you're asking which is the better path financially, but you racked up the debt, so you should pay it off.

[ooeei]

We have to know your income, expenses, card balances, interest rates, and so forth.

Those factors influence if you can repay the debt, @zstan, but as for whether or not you should default? No. Pay what you owe.

I know you're asking which is the better path financially, but you racked up the debt, so you should pay it off.

Not sure I agree. If it makes more sense to default, I don't see a compelling reason not to. If you owe money to your nextdoor neighbor, sure, but to a credit card company? I don't have a moral issue with working within their rules and the law to put myself in the best position, the same way they don't.

[ChickenStash]

Moral issues aside, it usually takes a while to get to the point where the CC companies will settle. From others that I know have done it, they didn't start being able to deal until at least 3 months after ceasing payment and being harassed by bill collectors. The reduction amounts vary by CC so I wouldn't count on 50% off - some will deal, some won't. Also, reductions can be reported as a form of income to the IRS/state so expect a tax hit.

[Proud Foot]

Are you able to make the minimum payments each month? I have never had a credit card where the minimum monthly payment was less than the interest. I would guess my interest was 50-60% of the minimum payment. If you have been making the minimum payments each month then something seems off if the balance is not going down. What do you mean by you can't get the debt under control?

Before defaulting I would try calling the CC companies directly and asking them to reduce the interest rate for a period of time or it will be harder to keep paying the monthly amount if you are unable to get the balance (and related interest) to come down.

[WoodStache]

We have to know your income, expenses, card balances, interest rates, and so forth.

Those factors influence if you can repay the debt, @zstan, but as for whether or not you should default? No. Pay what you owe.

I know you're asking which is the better path financially, but you racked up the debt, so you should pay it off.

Not sure I agree. If it makes more sense to default, I don't see a compelling reason not to. If you owe money to your nextdoor neighbor, sure, but to a credit card company? I don't have a moral issue with working within their rules and the law to put myself in the best position, the same way they don't.

I appreciate the distinction here but personally agree with Pun. Not to sound too much like Ron Swanson, but it's less about who I owe and more about the fact that I do owe it. More of a "standing by your word" type of thing.

[Wayward]

First, I’m sure it took more than a year to get into debt, therefore it’s going to take more than a year to get out of it! The good news is you CAN get out of it – if you are willing to make sacrifices and work your ass off.

I would recommend writing a full case study to give the forum more information to really help you.  I’m assuming you are new here, so welcome! Definitely read: http://www.mrmoneymustache.com/2012/04/18/news-flash-your-debt-is-an-emergency/ as well as all the other MMM blog posts.  It’s not about how much money you make, it’s about how much you spend and changing your lifestyle/mindset.  There are also great books such as Your Money or Your Life or The Simple Path to Wealth.

If you don’t already, start tracking your spending (notebook, Excel, Mint, whatever works for you), from there optimize all your expenses and cut out luxuries.  For most people housing, transportation, and food are the highest costs per month and a good place to start optimizing.  Don't be too hard on yourself, it will take time and effort.

Write out all of your debts – type/company, balance, interest rate, and minimum payment. You can use a site like https://undebt.it/ or a spreadsheet to help you calculate the most effective method for your personal situation (snowball, avalanche, or other method).  Make an attack plan and stick to it, you can even write a journal for support and to stay motivated.

Figure out how big your shovel is (i.e. your monthly income – monthly expenses).  Also, can you earn extra money by working overtime, selling unused items, or getting a side hustle?

Set aside money each paycheck for an emergency fund, aim for $500-$1,000 over this year to start, so you have a buffer and don’t need to put any unexpected expenses on the credit cards.  I recommend Ally bank (1.45% APY) highly, link it to your regular online bank and set up automatic transfers.

Stay strong, you can do this :)

I would not recommend defaulting or bankruptcy, they should only be used as a last resort.   

[mustachepungoeshere]

We have to know your income, expenses, card balances, interest rates, and so forth.

Those factors influence if you can repay the debt, @zstan, but as for whether or not you should default? No. Pay what you owe.

I know you're asking which is the better path financially, but you racked up the debt, so you should pay it off.

Not sure I agree. If it makes more sense to default, I don't see a compelling reason not to. If you owe money to your nextdoor neighbor, sure, but to a credit card company? I don't have a moral issue with working within their rules and the law to put myself in the best position, the same way they don't.

Americans owe $1 trillion in credit card debt and you don't see a compelling reason for people to pay what they owe?

Do you want a financial crisis? Because that's how you get a financial crisis.

[marty998]

We have to know your income, expenses, card balances, interest rates, and so forth.

Those factors influence if you can repay the debt, @zstan, but as for whether or not you should default? No. Pay what you owe.

I know you're asking which is the better path financially, but you racked up the debt, so you should pay it off.

Not sure I agree. If it makes more sense to default, I don't see a compelling reason not to. If you owe money to your nextdoor neighbor, sure, but to a credit card company? I don't have a moral issue with working within their rules and the law to put myself in the best position, the same way they don't.

Americans owe $1 trillion in credit card debt and you don't see a compelling reason for people to pay what they owe?

Do you want a financial crisis? Because that's how you get a financial crisis.

I was about to say ... not paying your cards will make everyone poorer through exactly that.

But that's a secondary issue. In my view, not paying your debts for consumer spending is simply stealing...

[ETBen]

I can understand situations where defaulting or bankruptcy make sense. Usually involving financial ruin from something unexpected. But agreed with others that not paying bc it’s a credit card company is pretty convenient rationale. You bought things you couldn’t afford. Choosing not to pay is akin to stealing. And if you lack the discipline to pay it off/earn more, then you making this debt go away by defaulting probably won’t make you any better at disciplined spending/saving habits in the future.