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A reader knows she’s in trouble, but Howard Dvorkin knows a way out.

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Question: I stopped paying my credit cards about a year and a half ago, and would like to pay my debts rather than file bankruptcy. I haven’t kept track of amounts or responded to any collection attempts (except for one credit card, which I settled because they were threatening to sue), so I have no idea who I owe what amounts. What happens if I stop paying my credit cards? I just ordered my free annual Equifax report and am confused.


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Howard Dvorkin CPA answers…

Howard Dvorkin on how to get out of debt fast

Some readers might wonder, “What happens if I stop paying my credit cards?” It’s not as uncommon as you might think. I’ve seen this same situation many times during the past 20 years. It happens like this…

You fall a little behind on your bills, but you’re still in control (or so you think). Then a catastrophe happens: You’re laid off, you suffer a debilitating illness, you get divorced, or a family member suffers one of these fates.

You run up your credit card bills to get you through the tough times, and because you’re so preoccupied with these major life emergencies, you put those bills on the back burner. Only when the threatening phone calls from debt collectors begin do you consider what to do next.

I’m not sure this describes your situation, Vanessa, but the results are the same either way: You have a problem that you ignored, and now you don’t know where to start.

The good news is: You can dig your way out, and it’s not as hard as you think.

Let’s start at the end of your question and work our way backward.

Your credit report

The free credit report you got from Equifax — and you’re entitled to one free report each year from the three major credit bureaus — helps you learn a lot about your credit well being. (Read more about Decoding Your Credit Report.)

However, it won’t give you the actual account numbers of your credit cards.Equifax codes that information for its own internal use and your protection. So you need to call the creditors yourself. The easiest way? Look for the toll-free number on the back of your credit card, or on your monthly statement.

Do not call back those debt collectors. Go straight to the source, which are the companies that issued you the credit cards in the first place. They’re the ones you need to speak with.

Your options

You have four choices, Vanessa. The first is the worst: Do nothing. By writing to me, you already know this is a terrible choice that will haunt you in the long run.

What’s left are these three options…

  1. Pay your balance in full. This will solve your debt problem but not your credit problem — your credit will still be listed as poor, making it difficult to get a loan or a mortgage. Of course, if you have this sum of money available, you wouldn’t have this debt in the first place. I’ve also recommended against cashing in your retirement to pay off credit card debt.
  2. Seek credit counseling. I’m biased, since I’ve been involved the credit counseling business for more than two decades. Credit counseling agencies are nonprofits that offer free consultations and minimal fees for other services. However, in this case, counseling won’t help you. The debts you have are so significant, I’d proceed to No. 3.
  3. Negotiate debt settlement. Because your debt-to-income ratio is so high, this is your best option, Vanessa. You should start out seeking to pay 10 percent of what you owe. This is your quickest way back to financial health. It’s also fraught with peril.

Debt settlement explanations and warnings

The most common question I hear about debt settlement is an excellent one: “Why would credit card companies be willing to take pennies on the dollar after I ran up big debts?”

The reason is simple: They prefer to get something rather than nothing. Once a customer is flirting with financial disaster, those companies know they stand to lose out on everything.

However, availing yourself of this option isn’t without consequences. First, be careful of unscrupulous debt consolidators who charge big upfront fees and promise the moon. If you’re serious about exploring debt settlement, you can fill out the form to the right and receive a free consultation.

Second, realize that debt settlement is not credit restoration. Once you’ve satisfied the credit card companies, your credit history is still an open book to lenders. The good news is that you can embark on the credit restoration process all by yourself — here’s our quick-study guide.

The bad news is, this can take a lot of time and energy. You can also hire a firm to do it for you. Again, you can fill out the form to the right for a free no-pressure phone call and decide for yourself.

I know this may seem like a lot of information I’m hitting you with, Vanessa. Take it one step at a time, and you’ll be fine.

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About the Author

Howard Dvorkin, CPA

Howard Dvorkin, CPA

I’m a certified public accountant who has authored two books on getting out of debt, Credit Hell and Power Up, and I am one of the personal finance experts for I have focused my professional endeavors in the consumer finance, technology, media and real estate industries creating not only, but also Financial Apps and Start Fresh Today, among others. My personal finance advice has been included in countless articles, and has appeared in the New York Times, the Washington Post, Forbes and Entrepreneur as well as virtually every national and local newspaper in the country. Everyone should have a reason for living that’s bigger than themselves, and besides my family, mine is this: Teaching Americans how to live happily within their means. To me, money is not the root of all evil. Poor money management is. Money cannot buy happiness, but going into debt always buys misery. That’s why I launched I’m glad you’re here.

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