Friday, March 19, 2010

Why I Stopped Paying My Credit Card Bills

I have absolutely nothing to sell you. Not a thing. But I do have something to tell you—something that can change your life forever, as well as really stick it to those giant financial institutions that, unbelievably, are still sitting pretty, still enjoying big, fat bonuses, still raking in huge profits, after helping wreak financial havoc upon America and the world. But first a short story….

It begins with an immaculate credit rating. My wife and I, honest as the day is long, and despite having an enormous credit card debt, were careful to pay our bills on time, every time. But then I and many others lost our jobs due to the economic crisis caused, in part, by our good friends at those all-powerful financial institutions, aided and abetted by our good friends in Congress. Now, like most folks, I had been without a job before and expected that, like before, I would quickly recover and find another job. Alas, I did not realize just how different the landscape had become. And so, despite applying for literally hundreds of jobs (even in other states) for which I was very qualified, I was out of work for over a year! Worse, my wife’s commission-only job also ran dry. We were faced with the most dire financial circumstances of our life.

For the first time, I had to accept Unemployment.
For the first time, I had to accept Food Stamps.
For the first time, I had to accept Medicaid.

(Though I am politically conservative—unlike the current, visionless batch of Republicans who, rather than offer better ideas and direction to America, seem to be concerned only with causing the current administration to fail—let me say a word of thanks to our Democratic brethren who advocated for, and implemented, these crucial safety nets. I just don’t know what my family would have done without a little assistance from the government. Now, I doubt I’ll ever be a Democrat, but hats off to our more liberal friends for thinking of the poor…for I had become poor.)

Now, a word about our debt. My family lives in a very modest home. Our Toyotas are ten- and eight-years-old, respectively. We have simple tastes and are not extravagant people. Ten years ago, we had sold our home in another city and were completely debt-free. Upon moving to our current location, we had taken out a mortgage on an older, somewhat run-down home (we bought it for its location and privacy) that was in desperate need of a lot of hard-work, cleaning, painting, landscaping, repairs, remodeling, and so forth. I was yet without a job, but since we were debt-free, we thought it would be fine to use our credit cards to buy the needed appliances and cabinets.

That was the start of it all. Very simply, we quickly amassed several thousand dollars in credit card debt. And though we paid our bills, I didn’t land a job until about three months later. From then on, the small, seemingly inconsequential, purchases of fast food, going to dinner, renting a motel room for vacation, going to the movies, etc., all began to add up, up, up. Yes, we still made our payments, but by the time it was all over (oh, we did pay off one of our cars using a cash advance in order to take advantage of a very low interest rate that was being offered), we had, I’m ashamed to tell you, nearly $35,000 in credit card debt—way above the average! Again, not because we were buying things from Tiffany’s, but just through the cumulative effect of some large, needed purchases, plus numerous, rather mundane, thoughtless purchases that caused us to carry a balance each month, etc. Like I said, I'm ashamed that it got so out of control, but it did.

Oddly enough, before I lost my job in January 2009, my wife and I had been confident that, between our salaries, we would be able to pay off our credit card debt completely in 2009. I still remember what she said when she wept in despair at the realization that our dream was not to be. “We were so close, so very close. We could have made it happen. And now…this.”

Well, you can imagine what it does to a husband’s heart to see a dear, diligent, thoughtful wife feel the weight of the world on her shoulders. And yet, all across America, millions of people were feeling similar despair.

To our credit, my wife and I made a wise and important decision very early-on. We had heard of other people who, suffering from the economic crisis brought on by our big financial players, had ravaged their savings and retirement plan in order to save their houses from those same big financial players—only to wind up losing their house anyway, leaving them with absolutely nothing! No nest egg to fall back on—their savings and retirement were gone! Nothing. And so my wife and I decided that, come what may, we would not take a single dime from our very meager IRA to pay bills. If we couldn’t make due by cutting back and living on my small Unemployment check and the modest advances against her future commissions, well, we’d just sell (even for a loss) and move in to some old mobile home, or with friends or family. We were not going to be left without any means at all to support our young son’s childhood and future. Wasn’t going to happen!

Moreover, because we deeply valued our good credit and had, so far, been able to make our payments (I had been blessed with severance pay before I went on Unemployment), I wrote to our credit card company (to the CEO, actually), telling them that our situation had changed for the worse: I was without a job, was now on Unemployment, my wife’s work had dried up, we had no health insurance, significant monthly expenses for prescriptions or medically-necessary supplements, etc. In an effort to act in good-faith, and in the hopes that I might be able to protect my credit score, I broke from our decision not to touch my IRA account. I offered to give them slightly more than half of what I had in my small IRA to settle our account. The lender outright refused. I tried again. Several times. Incredibly, the lender refused every single offer! In fact, I was made to know that because my account was not delinquent, there was nothing they could do! In other words, they were telling me that I had to first damage my credit in order to get them to do anything. But, of course, damaging my credit was precisely what I was trying to avoid!

There was simply no way out, it appeared. Distraught, my wife and I took an ancient Biblical principle to pay as long as we could scrape together enough to pay—that is, as long as there was “meal in the bottom of the barrel.” After that, we would just have to take our chances.

Now, we didn't wind up filing bankruptcy, but you can believe that I began to research the bankruptcy option. It was the last thing we wanted to do, but we were now being forced to consider every alternative. With bankruptcy, I wouldn’t have to pay the lender a single dime. And yet, although they knew I was in dire straits, was scrapping by, and that they stood to lose all that we owed them if we filed bankruptcy, they were merciless. They were going to play hardball right to the end. They didn’t care how I paid, so long as I paid. Sell drugs. Sell my blood. Sell my body. Sell other people’s bodies. Rob a house. Wreck your health and mental well-being. It didn’t matter, so long as they got their money.

Well, eventually, we finally were forced to miss a credit card payment. A few days later, after my next Unemployment check had come in, we had the money to make-up that payment—but by that time, another payment was also due! To catch our account up was now impossible. We could barely afford the one payment (and it late), let alone two payments. We knew then that, based on our past experience with our intransigent lender, we were sunk. We could not afford to catch back up, so at that point, my immaculate credit score was gone (I read somewhere that a good credit score drops a whopping 100 points for your first delinquency, then further with later delinquencies). It was a dirty, rotten shame, especially after all the struggle and angst we had encountered in an attempt to act in good-faith to salvage things from the maelstrom.

Then I had an epiphany that taught me what I really needed to know. Like I said, I’m not selling anything. I’m going to TELL YOU what I learned. In any case, now that the meal in the bottom of the barrel had run out, I decided to play hardball, too. What a wonderful difference it made!

Before we go further, do you know how many of those really rich guys got to be so rich? In a nutshell, they did so by being ruthlessly business-like about money. Not only would they foreclose (figuratively, of course) on their own mother’s home, but if things get tough for them, they will not hesitate to file bankruptcy to protect their wealth (even if they have millions of dollars sheltered, or fabulous mansions remaining). They will hire top-notch lawyers to shelter their assets using closely parsed loopholes in the law. You can be absolutely certain that the CEOs of major corporations are not wringing their hands or losing any sleep at all over the fact that you may lose your home, car, life’s savings, or what-have-you. While they vacation in the Hamptons or sail the Caribbean on their fine yachts, you and your family are left brokenhearted, standing in the sad rubble of what had once been your life. These big-wigs are ruthless when it comes to money. They don’t care if Tiny Tim needs an operation or not. Just give them their money!

Two very important things hit me in all of this. First, I realized that unsecured debt (credit cards) should be the LAST thing I worry about in hard times. Like I said, I decided to play hardball, to become ruthlessly business-like in my approach to these merciless credit card companies. Why anyone would jeopardize their home or family in order to pay credit card bills is beyond me. Yes, if you can pay your credit card bills, then, by all means, you should pay them. This is only fair and honest. Please don’t misunderstand me! But jeopardize your family’s well-being to pay a credit card? No way!

Yet people wreck their lives to pay credit card debt they can no longer afford. Why would they do that? Well, that was my first epiphany!


Why do we make payments we cannot afford? Why do we tremble at the calls from big banks? We do these things because we have been led to believe that our credit score is a report card on how good a person we are, on how decent and honorable we are, and so forth. The banks would like nothing more than for you to continue believing that. After all, it will cause you to short-change your children, your life, your family, your health, whatever is necessary, in order to keep paying them. They want you to think (and they use supposedly independent news articles, credit counseling agencies, and so forth, to make you believe this) that you are a failed human being, that you cannot survive in this world, that life will become a living hell for you, unless you are willing to rip out your soul to pay them, are willing to sacrifice your children’s well-being, on the altar of your credit score.

But nothing could be farther from the truth! If you don’t hear another thing I say, hear this: When you simply cannot pay, when life has turned upside down, when the economy has been so wrecked by the games these financial corporations have played, then get over yourself and stop paying! Quit killing yourself and wrecking your family’s future to do what you absolutely cannot afford to do!

No decent person would fault you when, in hard times, you pay your mortgage rather than your credit card. No decent person would fault you for providing for the basic needs for your family rather than paying your credit card. No decent person would fault you for trying to provide for the needs of your children rather than paying your credit card.

But the big banks and the credit agencies are not like decent people. They want you to think that you are a miserable low-life if you don’t pay them. Though these big banks got a bailout from the government, you don’t see them extending the same help to you (unless the government forces them to). They will eat you for lunch, wreck your life, cost you your home, make your children dress in rags--whatever--but just give them their money!

Why do we exalt this faceless algorithm called a credit score to god-like status, as if it and the banks are our judges? Very simply, my friends, once you get over trying to protect this nebulous, secretive, alchemy called a credit score, YOU ARE FREE! Banks begin to tremble. They are no longer in control—YOU ARE!

Why? Because with credit cards—unsecured debt—banks have relied upon the intimidation of collectors and this nebulous, no-one-knows-just-how-it’s-derived, black box credit score, to keep you under control. It didn’t matter if you could afford to pay them, if you’d have to make your children eat cornbread and milk every day. Nope, just pay them…or else this mysterious thing called a credit score will be lowered, making you a “Very Bad Person.”

Oh, how I laugh at that now!

You see, once my credit score was wrecked, I wondered why I had waited so long! For years, though we had made our payments on time, everytime, we had been going into the hole to do so. We had been wrecking our future so that we could somehow, someway, remain “Very Good Persons” in good standing with the banks. We were putting off the truly important things like saving for our son's education, or having a little money set aside for emergencies. We were living nearly paycheck to paycheck because of the debt that we had—and had been allowed to!—incur. Yes, it was only right to pay them when we could afford to, but, alas, we continued to pay them well after we should have just stopped and cut our losses.

All because of this classified, mysterious, magician’s secret called a credit score. I REFUSE TO BE JUDGED BY SOMEONE’S ALGORITHM; BY SOMEONE TOP-SECRET COMPUTER PROGRAM! What a shame that banks will judge you solely by those three numbers….

I made every good-faith effort to not only pay my bills, but to settle them—even before I had become delinquent. I did the right thing. Too bad the credit card company didn’t. If they had worked with me, they could have spared my credit rating and gotten more than I finally wound up giving them. I realized that not only had my wife and I encountered a terrible financial crisis in our lives, but that the credit card company, by ruining our credit, had made our situation even worse! You see, we all eventually hope things turn around and we come into a better situation, but by then, when you finally have a job again, after all the deep damage your life has endured, you now have no credit with which to rebuild your life. Banks could care less. It seems that they are willing to utterly destroy you, your future, and the well-being of your children, if you cannot pay them.

Fortunately, I had another epiphany.


Why do so many of us try to hard to protect our credit when OUR CREDIT IS WHAT GOT US INTO TROUBLE TO BEGIN WITH? Your good credit got you a credit card. Your good credit caused the bank, with all their computational firepower on loan-to-debt ratios and all sorts of other calculations, to still keep extending you credit—even raising your credit limit—even when you were already in a difficult situation. After all, as far as they were concerned, you were still paying your bills, were still doing all you could to protect that oh-so-precious credit rating.

Yes, you and I bear responsibility for bad decision-making on our credit card purchases. But to be fair, the banks—again, with all their fancy calculations, knowledge of our credit scores, knowledge of our incomes, and so forth—gave us these credit cards, giving us some implied assurance that we would be able to still pay our debts. After all, knowing all they do about us and our spending, surely the banks would not have given us credit cards without good reason, right? So you can see that while debtors are certainly responsible getting into debt, the banks bear some responsibility too, for they played an enabling role. Except that now that we can’t pay, they aren’t willing to enable us to repay them.

The only people who cannot live without official credit are those who are unwilling to use their imagination or are unwilling to trade the chains of their credit-driven life for the freedom of open horizons. When you finally cross the line and say, “I cannot pay and I will not pay, no matter what it does to my credit,” you have suddenly made the bank shrivel up inside. Now, to be sure, for a while they will swagger around and make you think that Armageddon is come and that your life is the epicenter. But what can they do? WHAT CAN THEY DO? WHAT...CAN...THEY...DO?


If they garnish your wages or threaten to take you to court, tell them that you will immediately declare bankruptcy (and mean it), which will cause them to lose ALL that you owe them. With your newfound power, you’ll be able to say instead, “No, Mr. Big Bank, I’m going to tell YOU what I can afford to pay. Not only are you going to accept it, but you’re going to LIKE IT! And if you don’t, then I won’t send you a single dime until you start liking it!”

After months of not paying them, I told the credit card company what I could pay them a month. They refused. I wrote to them and told them that this was non-negotiable. If they so much as called me with a payment plan that was a single penny more than I had offered, I would reject it cold. And I absolutely meant it. They would not control me any longer. I had played fair, acted in good-faith, but I simply didn't have it to pay them. They could take it or leave it, I really didn't care which.

Then they came up with this stuff about how I could make “good faith payments” based on the amount I had offered to pay each month. I asked a simple question: “Will this serve as my monthly payment, allowing me to catch my account back up?” No, it would not. “Then why,” I asked, “would I pay you for the privilege of ruining my credit, when I can do that for free?” They had the audacity to ask me to continue making payments that would do nothing to help my case. Hey, to me, "good faith" should mean a little quid pro quo from the other side. But they didn't want to do anything for me. They just wanted me to keep sending money.

That’s right. I was out of the Matrix! I was in charge! What a rush!

But what if they took me to court? Why, I’d file bankruptcy within minutes of getting the summons, and they’d lose everything I owed them. After all, I was in a dire financial situation—they would truly be trying to squeeze blood from a turnip. Ruin my credit? Too late! They had already done that by refusing to work with me when I pleaded with them to work with me. My credit was already damaged. I let them know that I would now be calling the shots.

Well, finally, at 120 days pays due, guess what my credit card company does? They want me to make an offer to settle. This, after I had tried to protect my credit months and months before! This, after I had all but prostrated myself before them in my ill-guided attempt to protect my all-powerful credit rating. I almost refused to offer them anything, since they had ruined my credit and refused to work with my good-faith efforts. But two things changed my mind:

1) If I refused to pay them at all, I would lose my leverage over them. You see, so long as they think they can get a decent amount out of you, they have some reason to keep dealing with you. If they think you will pay them nothing, and the amount you owe is substantial enough, it is then worth their time to press the matter, going so far as to take you to court (though I could have, if I wished, just filed bankruptcy—but I wanted to avoid that). Fortunately, I never once told them that I would not pay them. I simply told them how much I could afford to pay them to settle, or, if not settle, then how much I could pay them monthly.

2) I am an honest person. I was willing to pay when I could pay. I wanted to continue to act in good-faith. I had zero legal obligation to give them anything from my IRA, but could if I wanted to. Had they taken me to court, no judge would have sided with them, since I was indeed as bad off as I have said. It is the height of indecency, in my opinion, to claim that a man is not honest because he does not sacrifice his child’s well-being to pay a debt (I considered my IRA a means to make a future for my child). That’s why I felt it important not to just empty my IRA and pay them off—I had to protect my family’s well-being, and that was all I had.

So, though I was not legally obligated to do so, in an act of continued good-faith, I offered them a round number from my IRA that was only 31% of what I owed them. That's right, less than one-third of what I owed them. I could not afford to pay them what I owed or what they demanded, but I was willing to pay them what I felt I could afford, while still protecting my family by keeping most of my retirement account intact.

Always be willing to pay them something. If you’re not, then they have nothing to lose by forcing you into bankruptcy. If there isn’t any indication that you will pay them something substantial (at least, say, 20%, depending on what you can afford), then they might as well keep pushing you. Be willing to pay what you can afford, but only after you have ensured that you and your family are suitably protected.

Get over yourself and your precious credit score!
Be willing to be truly free. Your credit score has been used against you, to keep you under control, to intimidate you, to force you to do what the banks wanted you to do. And, indeed, so long as you can, you SHOULD pay your bills. But when you can’t, do the right thing and take care of your family.

We hear these “noble” stories of people who suffered tremendously in order to pay off every single dime of their credit cards. Well, good for them. I’m sure the banks want you to hear their stories. But the truth is that most of us don’t have a huge amount of fat we can cut from our lives right now—certainly not enough to make a big difference. There is nothing wrong or small about doing your best, but failing. If you’ve done your best to pay, but you simply can’t, well, then you can’t. The banks will get a tax break for whatever you could not pay them (and you’ll have to pay taxes on what you didn’t have to pay), but do what is right for you and your family—get out of the credit quicksand that got you into trouble to begin with!

It’s not perfect. We all wish things worked out so that we could pay all our bills. If I had won the lottery, I would have been happy to have paid every single penny. But sometimes things do not work out (like when our economy is wrecked by big banks, financial companies, and others playing loose and fast with the future of America).


As my wife and I went through this deep valley of depression and financial turmoil, I gained some important clarity on matters. The most important thing you pay for is your home. You can likely find a way to survive even if you don’t have a car. But if you don’t have your own place to stay, well, things really become overwhelming very quickly. Imagine having to go to work if you don’t have a closet in which to hang your clothes. Imagine not having suitable bathing facilities. Imagine the lack of security you would feel if you were staying in a homeless shelter. Imagine the affect on your mental stability to not have the privacy and safety of your own home. You get the point.

When you are in deep financial trouble, it has a way or making your priorities clear, so you should certainly focus first on ensuring that you have a place to live. After all, if you don’t pay your credit cards because you can’t afford to, there is little anyone can do. But if you fail to pay your mortgage, your lender can foreclose on your home. So by all means, you need to either keep your original home or quickly find another, cheaper home. But here’s the cool thing: If you own your home outright, you can borrow against it to get what you need.

What bank would not lend you, say, $10,000 if you put your $100,000 home up for collateral? Now, this is not to say that you should borrow against your home. Only that if you really, really need to, and if you own your home, you don’t have to worry about having a good credit rating anymore! You have collateral that allows you to borrow against it.

Now, ideally, you should place purchases on a credit card so that, if worse come to worst and you cannot afford to pay your debts, you can keep your home and fight with the credit card companies (as I did). But, assuming that you cannot, or do not wish to, rely on that mysterious credit rating any longer, you could, if you so chose, take out a loan against your equity (aka a home equity loan).

But if indeed worse comes to worst and you can’t pay off loans that you have taken against your home, well, you (or the bank) can sell your home, pay off the debt, and you keep the rest. Thus, even if you then don’t have a home, you will at least have the wherewithal (what is left over after you pay your debt) to rent an apartment; perhaps buy another house; move into a motel temporarily, etc. In other words, you still have means.

My wife and I are applying ourselves to paying off our house. When we own that, the freedom that we now experience by being out from under the intimidation of that top-secret, mysteriously-derived credit score will be complete: We will be free from the financial “drug dealers” forever!


If you’re like me and my wife, savings are often taken from whatever is left over after paying all your other bills.


Your life is every bit as much of a debt and investment as your home—and far, far, far more important than credit card bills--pay yourself first! The payments you make to yourself in the form of savings, retirement plans, education savings accounts, and the such, should be considered high-priority “debts” or “bills” that you MUST pay before you even think of paying your credit card bills.

Have a set amount you pay toward your family’s future each paycheck. Then, if you have enough left over after groceries and so forth, pay your credit card bills. Don’t have enough left over? Tell your credit card company the truth: that you will need to make payment arrangements with them, since you are unable to pay all your bills. Why should your family’s well-being come behind everything else? PAY YOURSELF FIRST!

If they ask, you can tell them that along with your mortgage, you also have a monthly bill of X dollars to help pay your child’s college tuition (you don’t need to tell them that your child is still years away from using those funds to go to college!). Or you are paying for a roof for your house (if you have to put away funds for a new roof in the near future). You get the idea.

Now, I want to be very clear: this money is not for frivolous things. You shouldn’t refuse to pay your credit card bill because you want to use that money to buy a fancy pair of shoes, or get a vanity face-lift. Again, our dealings should be fair, in good-faith, and honest. It is not dishonest to set aside money for legitimate future needs, to consider these things financial obligations which you must pay each month. Do not use these powerful tools just so you can drive around in a red Corvette. Legitimate needs are powerful arguments in your favor. After all, we all want a good conscience.

But when you get off the You-Are-A-Bad-Person-Unless-You-Protect-Your-Credit-Rating-At-All-Costs merry-go-round--as well as finally own your home outright, realizing that credit is what got you into trouble in the first place--you suddenly breath the fresh air that our pioneer forefathers once breathed! The wide, open prairie of the future lies open before you! You are no longer at the beck and call of the big banks and financial institutions that have not only caused great destruction to the world economy, but have sought to keep you in bondage to them forever.

Pay your credit card bills if you can. If you can’t, well, then be free, people. Be free.