A Beginner’s Guide to Falling Behind on Payments
Let’s Not Sugar Coat
Falling behind on your bills absolutely sucks. The stress alone from dealing with credit card debt is enough to drive you bonkers, but once you fall behind, it can feel like you’re the biggest failure in life. I know because it happened to me. Not only has it happened to me, but I also started my career more than two decades ago helping people get out of credit card debt. I’ve helped tens of thousands of people along the way. My latest venture is the first app built for past due debts, and in just a few weeks, we had over 200k people sign up for the service.
Common questions pop up all the time, so I decided to write a super simple guide that helps those of us who have fallen behind on payments or are about to fall behind. If you’re not behind but know someone who is, share this. I promise it will help them. At the very least, they will learn they are not an anomaly. In fact, it’s very normal. After all, we all learned how to dissect a frog in school, but there was never a class that taught us how to use a credit card. That lack of financial education has systemic ramifications. I wholeheartedly believe that our past due debts are a byproduct of those ramifications.
No matter how you feel right now during this time I can promise you this; you are more than just a credit score. This debt, as overwhelming as it is, will be taken care of one way or another. Focus on your friends, your family, and living life as if it were a blessing. In the grand scheme of things, your past due debt does not define who you are.
Disclosure
I am not an attorney, and the information provided in this guide is based on my own experiences and knowledge in the consumer debt industry. It should not be considered legal advice of any kind. For any legal questions or concerns, I strongly recommend consulting with a qualified attorney who can provide guidance specific to your individual situation.
You Are Not Alone, Here Are The Receipts
This isn’t just a personal problem; it’s a systemic issue affecting millions of Americans. The rising delinquency rates and the sheer amount of debt highlight significant challenges within the financial system. If you are facing these issues, this is absolute proof that you are not alone. The financial stress you are experiencing is shared by many, and it’s a reflection of broader economic trends rather than individual failure.
According to the Federal Reserve Bank of Kansas City:
- Total Consumer Debt: As of Q1 2024, consumer debt reached a staggering $17.7 trillion, surpassing pre-pandemic levels.
- Real Terms Debt: Adjusted for inflation, consumer debt hit $14.5 trillion, exceeding the previous peak set during the 2009 financial crisis by $0.3 trillion.
- Credit Card Debt Increase: Since 2021, credit card debt alone has increased by nearly $0.2 trillion.
- Delinquency Rates: The share of credit card debt transitioning into delinquency rose from 4% to almost 9%. For subprime borrowers, this rate increased from 38% to 63%.
The Journey of Past Due Debt
Many people are mystified about what happens when you fall behind on your payments. Allow me to unveil the process:
- Day 1–30: You miss your payment, and your creditor starts sending reminders. Your credit score might take a slight hit.
- Day 30–60: The reminders turn into phone calls. Your credit score drops further.
- Day 60–90: The calls become more frequent, and you might receive letters. Your account is now seriously delinquent.
- Day 90–120: Your debt is likely sent to collections, and your credit score takes a significant hit.
- Beyond 120 Days: Legal action may be considered, depending on the creditor and the amount owed.
The Benefits (Yes, Benefits) of Falling Behind
When your account is sent to collections, your creditor typically sells it for pennies on the dollar. This means the company that buys your debt only needs to recover more than what they paid for it, plus the costs of collection. Here’s what this means for you: You have significant negotiation power over your past due debt. Since the debt is worth less to the collection agency than its original amount, they are often willing to negotiate. In recent years, as delinquent debt has increased in America, collection agencies have become more willing to work out payment plans or settlements.
You can negotiate this yourself by contacting the collection agency directly. The agency’s information is usually available on your credit report or in a recent collection letter sent to you. If you prefer to avoid the hassle of negotiating yourself, consider downloading Relief. Our app can handle this process for you, with current users saving an average of 45% on their balance.
Understanding that your debt is worth less to the collection agency than its face value empowers you. By negotiating, you can significantly reduce your debt and improve your financial situation.
Here are some snapshots of Relief in action…
Common Misconceptions
Can You Go to Jail?
No, you cannot go to jail for not paying your credit card debt. Debtors’ prisons were abolished in the United States in the 19th century. However, you can face legal action that may result in wage garnishment or liens on your property.
Will They Take My House?
Credit card debt is unsecured, which means creditors cannot directly take your house or car. However, if a creditor sues you and gets a judgment, they might place a lien on your property.
Does Ignoring Debt Make It Go Away?
Ignoring debt will not make it go away unless you ignore it for a really long time. If you choose to do this, you need to take evasive action to make yourself “bulletproof” from any levies or garnishments that can happen if you get a judgment against you. If you have the means, I believe the best way is to address debt head-on.
Understanding the journey of past due debt, dispelling common myths, and knowing the ins and outs of debt settlement can empower you to take control of your financial situation. You are not alone, and with the right tools and knowledge, you can navigate the challenges of past due debt.
State Laws on Debt Collection
Here is a link to every states basic laws on debt collection. I broke it down into three important categories:
Statute of Limitations
The statute of limitations for debt collection is a law that sets the maximum time period during which a creditor or debt collector can legally sue you to collect a debt. After this time period expires, the debt is considered “time-barred,” meaning the creditor can no longer take legal action against you to force payment. However, the debt still exists, and collectors can still contact you about it; they just can’t sue you.
For example, if the statute of limitations on credit card debt in your state is 6 years, a creditor has 6 years from the date you last made a payment to sue you for the unpaid debt. If 6 years pass and the creditor hasn’t sued you, they lose the legal right to do so.
Wage Garnishment
Wage garnishment is a legal process where a court orders your employer to withhold a portion of your paycheck to pay off a debt you owe. This can happen if a creditor wins a lawsuit against you and obtains a judgment. The withheld amount is then sent directly to the creditor until the debt is paid off.
For example, if you owe money on a credit card and the creditor sues you and wins, the court might order your employer to take 25% of your disposable earnings (the amount left after legally required deductions) from each paycheck and send it to the creditor.
Exemptions
Exemptions are protections provided by law that prevent certain types of property or income from being taken to pay off debts. These exemptions vary by state and can include things like a portion of your wages, your home (homestead exemption), personal property, and retirement accounts.
Here to Help
I can go on and on with more information, but I believe this post illustrates the most significant pieces. Feel free to reach out to me personally if you have any questions. The whole reason I got into the industry was to help as many people as possible. My email is jason@relief.app. Please allow me some time to respond as I often get tons of messages. I promise I will get back to you.
